True Cost of Foreclosure

Written by
Peter Dunn

Guest Post by John Stone from Stone Realty

There is a common misconception a lot of homeowners and some agents, including myself until I learned more, that banks want houses. In other words, banks get happy when people fall behind on their mortgage payments, have to foreclose and abandon the house. In all reality, that couldn't be farther from the truth. Banks want nothing more than for you to stay in your house. You see, banks are in the business of lending money, not taking over real estate. Sounds obvious, but a lot of people don't understand that.

So, what is the true cost of foreclosure? First, let's discuss from the banks perspective. If we are talking cents on the dollar, if you sell your house in foreclosure, the bank will get $.30 on the dollar. In a successful short sale, $.70 on the dollar. So, it's a win-win for the bank to sell your house in a short sale.

Now, let's talk about the cost of foreclosure to a homeowner. This is much worse. Let alone losing your home completely, foreclosure also affects your credit score, current and future employment and how long you have to get another mortgage. Let's dive into these a little deeper.

  1. Credit Score: If you let your house go into foreclosure, you can expect your credit score to lower from 250 to 300 points. Typically, this will affect your credit score for over three years.
  1. Current Employment: Employers have the right to check the credit of all employees. In many cases, a foreclosure is reason for immediate reassignment or termination.
  1. Future Employment: Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases challenge employment.
  1. Time Frame: A homeowner who loses their home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of five years.

In a successful short sale, credit score lowers by only 50 points, it is not reported on any credit report therefore not challenging current or future employment and the time frame is only two years for a Fannie Mae-backed mortgage. Closing your home in a successful short sale is the best, and in my opinion the only, option a homeowner has if they are falling behind on their mortgage payments.

If you have any other questions regarding this issue, please contact me. Go to my website, and there is a page designated specifically to short sales. Or you can always call me at 317-209-4355.

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