Your Credit Score and Stopping Foreclosure

Posted on September 24th, 2008 by saman

Foreclosure is a terrible event in your life and a foreclosure can also adversely affect your credit score.

If you have a poor credit history you might find it difficult to get mortgage and other types of loans. This is mainly because those that look at your low credit score will see you as less credit worthy and will conclude that you are not able to pay the loan back. However, there are some options if you are being faced with a foreclosure.

The most obvious way to prevent the foreclosure of your home is to try your best to pay your loan on time. However, many unexpected things can happen in life that can prevent you from making your house payments on time. Because of this, you may be able to prevent a foreclosed home by choosing the proper home loan package.

There are a number of lending companies that offer home loans online and in your area. There are many kinds of home loan packages available and it can get confusing. However when you do choose a mortgage loan you should be sure that forbearance is included in the package. A forbearance allows you to cease making payments on you loan for a certain time period provided that you have valid reasons for requesting the forbearance. In this type of agreement, you will be able to stop payments for a while and then go back to making payments once your financial hardship is over.

If a foreclosure occurs there is usually no forbearance agreement and you have not made your house payments for over three months. If you go through a foreclosure it is still possible to get a decent mortgage loan.

Begin by re-establishing your credit. A mortgage lender will most likely decline your mortgage application if there is a foreclosure on your credit history however. If you have maintained a good credit history after the foreclosure of your home, a potential lender will see the improvement. To re-establish your credit, you may want to open a new credit account and make a point of making your payments on time if not ahead of time. You may want to try getting a credit card with a reasonably low interest rate. Be sure that your new credit record shows potential lenders that you are creditworthy and dependable.

Next, after a foreclosure do not try to get another mortgage loan right away. There are a number of lending companies that may try and offer you a poor credit mortgage loan. You should only look into this if you have a great need to get a mortgage loan as soon as you can. If you can wait, do so. Know that the longer you wait before applying for another mortgage, the more likely it will be that you will be offered a lower interest rate. As you wait to get another mortgage, work on repairing your negative credit.

If you are not able to wait a year or more after a foreclosure and you need to get a home loan right away then you should be very picky about whom you choose as your lender. Your only options may be high risk lenders. High risk lenders offer high interest rates on your home loan. The interest rate will typically be two to three points above what is normally offered. Therefore it is important that you shop around before trying to get a new mortgage.