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Sometimes circumstances can make it difficult to keep track of your mortgage payments. The good news is that a single missed payment won’t automatically put you at risk of foreclosure. But if you go months without making a payment, your mortgage lender may begin the foreclosure process.
Once this happens, you could end up losing your home. As an added blow, your credit score could end up suffering a lot of damage.
The impact of foreclosure on your credit
The foreclosure of your home means that you have failed to meet your financial obligations. Having a foreclosure on your credit report could serve as a big red flag the next time you want to borrow money. It could also significantly lower your credit score.
That said, the extent to which your credit score will decline as a result of a foreclosure will depend on a number of factors. These include what your score looked like before foreclosure and what other positive or negative credit events contain your personal history.
Either way, once you have a foreclosure on your file, it stays on your credit report for seven years. During this time, you might really find it difficult to borrow money, or do so at an affordable rate.
How to avoid foreclosure
Just because you are no longer able to meet your mortgage payments does not mean that you are doomed to be the victim of foreclosure. There are other avenues you can take that can help you not only protect your credit score, but also stay at home.
On the one hand, you can see if it is possible to refinance your mortgage. If you are able to replace your current home loan with a new one with a lower interest rate, you may be able to keep up with your monthly payments once they go down.
If you can’t refinance your mortgage, or if that doesn’t make your mortgage payments affordable, you can ask your lender to change your loan terms. Your lender may, for example, agree to extend your repayment period by a certain number of years, thereby reducing the amount of money you owe each month.
If you are unable to pay your mortgage due to a temporary difficulty, such as the loss of your job, you can also request a suspension of your loan. During forbearance, you are allowed to skip your mortgage payments without it being viewed as negative activity from a credit rating perspective. To be clear, your lender will not sue for foreclosure when you miss payments while your loan is forborne.
Protect your credit
Avoiding foreclosure is a good way to protect your credit score when your housing payments get too much to handle. If you’re at risk of missing even a single payment, contact your lender and see what kind of arrangement you can find.
Many homeowners have struggled financially since the start of the pandemic, and lenders may be more inclined these days to give you a little slack. Have this conversation and see what options you have before you resign yourself to foreclosing on your house.
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