What are the consequences of foreclosure?
A handful of families are experiencing foreclosure these days. Have you ever thought about what happens to them after the financial setbacks caused by foreclosure? Sadly some consequences are unavoidable. Families who have faced foreclosure do not just suffer a financial loss, but an emotional loss as well. To get a clearer understanding, listed below are some of the most common foreclosure consequences and tips that could help resolve them.
• Losing a home- The first consequence of foreclosure is losing your home. Foreclosures are due to financial struggles a family is facing. The loss of the home can make looking for a rental property, where advance deposits are required, difficult. Families often find it difficult to re-establish themselves financially. Some families may have some luck in finding landlords who only look at their credit scores. But, be aware that there are many landlords who review credit reports. When they see the foreclosure on your credit report, it might give them a negative impression and they will consider you a higher risk than other potential tenants. The best way to ensure that you have a house or an apartment to live in when you are facing foreclosure is to plan ahead. Do a credit report check, save money as you are able, and look for places where you have a high possibility of being approved. It is important to save as much as you can, so if a landlord requires you to pay an increase your deposit because of a low credit score, you can afford to do so.
• Declining credit rating- A foreclosure creates a huge impact on your credit report, especially if you have other loans and/or credit card balances that have not been repaid. Once a foreclosure appears on your credit report, and you request new loans or new lines of credit, lenders and banks may consider you as high risk and decline your application. This will hurt your credit score and decrease it further, which in turn, might make it more difficult for you to improve your score. On the other hand, if you have a good credit history and the foreclosure is the only negative transaction on your report, you may have a chance of improving your score more quickly. You can review your credit report on a regular basis to see how your credit history is improving.
• Deciding to buy a new home- Foreclosed owners are restricted from applying for a new mortgage right after the completion of the foreclosed home. If you wish to apply for a new mortgage, you may have to wait for up to five years before you can do so. Often you will need to be able to put down 10 percent down payment and have a minimum score of 680. The best chance of obtaining a home mortgage, if you do not wish to wait five years is to apply for a Federal Housing Association (FHA) loan. If you lost your home under extenuating circumstances, FHA may allow you to complete the purchase of a new home in as little as three years. Before you apply though, you need to make sure that you have been working on improving your credit history.
• Owing employers and lenders an explanation- A number of employers these days conduct credit reports. Of course, they couldn’t do so without your permission but if you refuse, you might also lose your opportunity to be hired. There are employers who do not conduct credit checks, but if you are applying for a sensitive position, let’s say in the IT department or accounting; you should be prepared to give an explanation as to why the foreclosure occurred. This also applies when you apply for new loans after the foreclosure. Some lenders want to know more about what happened.
• Having to pay the tax bill- After the foreclosure has been finalized, you would still have to deal with paying the taxes on the monies that the IRS considers as income. Take note that the debt which has been forgiven is considered as income by the IRS and without an exemption is taxable.
• Living with financial and emotional losses- Having to live life after foreclosure is indescribable. Since the financial struggle is inevitable, families are forced to adjust, which some, especially children, might find difficult to do.
Foreclosures can really affect families, both financially and emotionally. In this day and age, families experiencing foreclosures are greatly affected by the judgments passed onto them by others. However, with the increasing number of foreclosures, there is a hope that someday, others would understand and the stigma of these incidents will be decreased.
Joy Mali is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.
• Losing a home- The first consequence of foreclosure is losing your home. Foreclosures are due to financial struggles a family is facing. The loss of the home can make looking for a rental property, where advance deposits are required, difficult. Families often find it difficult to re-establish themselves financially. Some families may have some luck in finding landlords who only look at their credit scores. But, be aware that there are many landlords who review credit reports. When they see the foreclosure on your credit report, it might give them a negative impression and they will consider you a higher risk than other potential tenants. The best way to ensure that you have a house or an apartment to live in when you are facing foreclosure is to plan ahead. Do a credit report check, save money as you are able, and look for places where you have a high possibility of being approved. It is important to save as much as you can, so if a landlord requires you to pay an increase your deposit because of a low credit score, you can afford to do so.
• Declining credit rating- A foreclosure creates a huge impact on your credit report, especially if you have other loans and/or credit card balances that have not been repaid. Once a foreclosure appears on your credit report, and you request new loans or new lines of credit, lenders and banks may consider you as high risk and decline your application. This will hurt your credit score and decrease it further, which in turn, might make it more difficult for you to improve your score. On the other hand, if you have a good credit history and the foreclosure is the only negative transaction on your report, you may have a chance of improving your score more quickly. You can review your credit report on a regular basis to see how your credit history is improving.
• Deciding to buy a new home- Foreclosed owners are restricted from applying for a new mortgage right after the completion of the foreclosed home. If you wish to apply for a new mortgage, you may have to wait for up to five years before you can do so. Often you will need to be able to put down 10 percent down payment and have a minimum score of 680. The best chance of obtaining a home mortgage, if you do not wish to wait five years is to apply for a Federal Housing Association (FHA) loan. If you lost your home under extenuating circumstances, FHA may allow you to complete the purchase of a new home in as little as three years. Before you apply though, you need to make sure that you have been working on improving your credit history.
• Owing employers and lenders an explanation- A number of employers these days conduct credit reports. Of course, they couldn’t do so without your permission but if you refuse, you might also lose your opportunity to be hired. There are employers who do not conduct credit checks, but if you are applying for a sensitive position, let’s say in the IT department or accounting; you should be prepared to give an explanation as to why the foreclosure occurred. This also applies when you apply for new loans after the foreclosure. Some lenders want to know more about what happened.
• Having to pay the tax bill- After the foreclosure has been finalized, you would still have to deal with paying the taxes on the monies that the IRS considers as income. Take note that the debt which has been forgiven is considered as income by the IRS and without an exemption is taxable.
• Living with financial and emotional losses- Having to live life after foreclosure is indescribable. Since the financial struggle is inevitable, families are forced to adjust, which some, especially children, might find difficult to do.
Foreclosures can really affect families, both financially and emotionally. In this day and age, families experiencing foreclosures are greatly affected by the judgments passed onto them by others. However, with the increasing number of foreclosures, there is a hope that someday, others would understand and the stigma of these incidents will be decreased.
Joy Mali is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.
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