How Long Will My Credit Be Impacted After Foreclosure?

CREDIT has become the adult grade card. It opens and closes doors of opportunity and survival. For someone in a mortgage crisis it is more important to focus on closure in order to move forward. Once a house is foreclosed upon or sold in a short sale the healing process begins.

 

The majority of the damage comes from the number of days of delinquency someone experiences. FICO put out a good study to refer to: http://bankinganalyticsblog.fico.com/2011/03/research-looks-at-how-mortgage-delinquencies-affect-scores.html

 

The chart in the link shows us a few things, first of all that a short sale with the debt forgiven is better than a short without the debt forgiven. A short sale without the debt forgiven is no better than a foreclosure in the chart. There is one thing where the chart falls short, it only shows 90 days of delinquency, in Arizona most homeowners would likely be at 180 days delinquency before the foreclosure would actually take place, so the credit score would be lower just based on the longer delinquency period being reported, and of course the longer the delinquency the more damage to the score. No matter what, once the final event takes place, foreclosure or short sale, the recovery period begins. The derogatory information will remain for seven years and as each year passes will have less and less adverse impact on the credit score. Generally the scores are back to the high 600 range to low 700 range in 2 - 3 years, however, every credit report is a like a stand of DNA, so recovery depends on the whole picture, not just one account.

 

The GOOD NEWS: nothing bad on the credit report will last forever. It may be necessary to look at bankruptcy as an option in order to weigh your options and guard against deficiency liability. While not favorable, it is an efficient means to cleaning up the problems of financial disarray in a very specific and legal manner without leaving the door open to future liability. When facing the prospect of losing your house always sit down with a bankruptcy attorney to find out your potential liability.

The other GOOD NEWS: a foreclosed homeowner today can be a home buyer again, generally at the 3 year point. In 3 years (FHA 4155 Guidelines as of 4.21.2010) no matter what my circumstances are right now YOU can buy again, that is 1,095 days, or only 26,280 hours (1/3 or more of which you will sleep through). Of course, at the 3 year mark, you will have to qualify and there cannot be any derogatory credit issues after the original foreclosure.

 

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor

Ritchie School of Real Estate Finance

480-203-4641 Cell
Patrick@PatrickRitchie.com

NMLS# 276438 AZ#0913109
Click Here to go to Patrick's Mortgage Website

© Copyright 2012 Patrick Ritchie All Rights Reserved