How Much Will A Foreclosure Impact My FICO Credit Score? – Episode #49
August 5, 2008 by awjolls
Filed under Episodes, Foreclosure, Top Posts
Foreclosures and short sales will impact your credit score significantly!
How many points will my credit score drop from a foreclosure? There is no correct answer here, and anyone who tries to give you an exact point drop is guessing. I’d expect a 100-150 point drop for most folks from a foreclosure. A 200 point drop is more likely if you had a score over 750-800, but I suspect few people are in this scenario, as most people are looking at foreclosure after maxing out credit cards and being late on other loans.
The length of time your credit score needs to recover? Again, it depends, over a year in most cases. A foreclosure is not quite as damaging as a bankruptcy and a bankruptcy can take 18 months or longer to improve your credit score. Your score is not likely to reach the 800s until the foreclosure drops off your credit file and that will take 7 years. Remember, a bankruptcy takes 10 years to fall off your report.
Because of the credit crunch, Fannie Mae has stated new requirements before you can be approved again for a home loan:
- Foreclosure: 5 years from completion date; additionally between 5 and 7 years you can only purchase a personal residence, and must have a minimum of 10% down and 680 credit score. Also you can only do limited cash-out; no regular cash-outs are permitted. After 7 years you’re back at square one.
- Deed in lieu: 4 years from completion date; also 10% down payment required between years 4 and 7.
- Short sale: 2 years from completion date.
- Chapter 13 bankruptcy: 2 years from discharge date or 4 years from dismissal date
- All other bankruptcies: 4 years from either the discharge or dismissal date
In addition, you should know that a short sale is seen as similar to a foreclosure by the credit score models. Perhaps, you could get a break as the lender might not report the short sale -whereas a foreclosure will definitely be reported — but I wouldn’t count on this.
Similar Posts:
- How Much Will A Foreclosure Impact My FICO Credit Score? – Episode #49
- Bankruptcy – Last Resort – Episode #97
- How Do I Get an Apartment with a Bad Credit Score Caused by a Foreclosure? – Episode #50
- Credit Score Estimator Can Estimate Your FICO Score – Episode #89
- What Age is Best For Credit Scores? – Episode #28
- Thin File or No-Hit Credit – Episode #96
Andy,
Thanks for the correction on my blog about credit scores. I added it to my blog and put a link in there for you site. Very helpful. Thanks again!
I always thought a chapter 13 Bankrupcy was for 7 years, however in 2001 I had a Chapter 13 and it was dismissed 5 months later as I left out an electric bill I think is what they said so I had to pay off all the debts that were listed in this chapter 13 and not only did we pay everything off but then to find out that because they dismissed the bankrupcy that I had to keep the bankrupcy on my credit report for 10 years even though if it had been discharged it would only be 7. Experian and Trans Union no longer list my bankrupcy but equifax does. I just do not think it is fair that because I filed for the bankrupcy I had to keep it on my report when I paid every penny that was owed off. I was told there was nothing I could do about it and I am wonderin if this is true.
IF foreclosing and both spouses have their names on the original purchase agreement for the home, but only one has their name on the bank note, will both suffer damage to their credit or just the one on the mortgage note?
Credit reports and scores get info from lenders based on your loan contract [bank note] and not legal contracts nor titles.
Here’s the simple test. Is the loan appearing on both credit reports today? A foreclosure will impact the person or persons with that loan listed in their credit file.
I am going through the loan modification process with my lender but the courts have begun the foreclosure proceedings because they have to. I am still uncertain how this will affect my credit, if I am able to save my home through a modification witll a foreclosure still show up on my credit score? Is my credit ruined no matter what my final outcome with the house is?
Foreclosure will only show up on your credit report if the foreclosure is completed. Foreclosure proceedings don’t show up. A loan mod will be way better for your credit score than a foreclosure or a short sale. Keep working the process. I hate to use the word “ruined” because it sounds so final. People recover their credit scores from foreclosures, it just takes time. You saw in my post that Fannie Mae has rules before you can be approved again for a home loan: For a foreclosure: 5 years from completion date.
My wife and I are discussing whether or not forclose, but we have a co-signer on the note. How much would this affect our co-signer’s credit? Does it hurt theirs as much as it would ours? They recently checked their credit score during a refinance and said it didn’t even show up on their report, but their name is on our loan documents.
It will impact a co-signer as much as it will impact yours. If you haven’t foreclosed yet, it wouldn’t impact the reports yet. Once you foreclose, your credit will be impacted and so will the co-signer’s. Sounds like she’s refinanced just in time. A co-signer is on the hook for a loan, to the same extent you are, so their credit is impacted similarly. Sorry if this is not what you wanted to hear.
Andy said – “Foreclosure will only show up on your credit report if the foreclosure is completed. Foreclosure proceedings don’t show up.” this is incorrect. I had proceedings started on my mortgage, it never went to court, I modified the loan before it did, but it says foreclosure on my credit report.
how badly, if at all, will the “making homes affordable” loan modication affect a person’s credit score? also, why wouldnt it be viewed like a refinance? thanks
It’s going to have an impact. The score is looking probabilities. It isn’t that the act is score impacting, it’s what happens to the average person who does an event that matters. As many people with loan mods ultimately still fall into trouble, the credit score reflects this. Whereas, in contrast, someone with a refinance tends to have good future behavior for paying back the loans. Make sense? No one wants to report what the numeric impact of a loan mod will be, but i’d expect a pretty big score drop — maybe even 100 points depending on where your score is, and how its reported.
How does having both a bankruptcy and a forclosure affect our credit. How long before we can look at another home? We used to have excellent credit till right before the bankruptcy, but ended up closing a business and everything including our house was tied to the business loan. We did declare the mortgage in the Chapter 7 filing. Does this make any difference? We turned the keys over to the bank who held the second on our house within a month of filing the bankruptcy (as instructed per our lawyer) and have not lived in the house or made payments in the year and a half since the filing. In the last 3 months we have had an investor/real estate broker contact us and begin negotiating for a short sale with the bank. However, the sheriff’s sale has taken place and now the real estate broker wants to fix up the house and sell it, instead of buying for the investment group he said he had that wanted to buy it. Also, he said that we had 180 days after the forclosure/sheriff’s sale to be able to sell the property and advoid having a forclosure on our credit history. Is this right? Are we being scammed? Help!
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I have a 800 score. We are considering a short sale due to an our of state job relocation. I am current on my current house. I have one car loan ~ $25k, 5 credit cards with high credit limits ~ $89k. but no balances on them. Any idea how much my credit will be affected with short sale?
Victor, this could be a 200 point swing. If it were me, I’d consider renting the house out and then renting in your new location to see if the market can recover. Your score can take over 2 years to recover and 7 years to have the short sale disappear from your record. I ask the question, how long will it take to have the market recover in your area. No one knows, but you may have an idea.
It will take a couple of years to recover from these events. Not sure if you are being scammed. You may want to get assistance from a local credit counseling service. A short sale is the same as a foreclosure in the eyes of a credit score. so you will be hit with a large drop in your credit score regardless of the outcome. In many cases, I advise users to simply let the bank foreclose. The difference is in this post. Fannie Mae has looser restrictions for short sales. Your waiting period is only 2 years in this case
What is the difference, if I was to foreclose vs. having a foreclosure and a bankruptcy?
Simple answer: Both are very damaging to your credit file. Chapter 7 bankruptcy stays on your credit for 10 years, a chapter 13 or a foreclosure falls off in 7. Plus, you need to evaluate the emotional thought of having a bankruptcy on your record. Some people don’t care, others will make interesting financial choices just to keep from bankruptcy If you are close to either, you may want to look into a local credit counseling agency. Make sure they are a non-profit agency.
I recently bought into a distributorship with a bread company.
i had to get a loan for $76k
After running the route for a few weeks I decided it is too much driving and
not worth keeping.
The company requires a 30 day notice to terminate the rights to the route.
The company will pay the loan off in full when my notice is up.Can you tell
me will this hurt my credit rating since the company paid off the loan.
They will resale this route with no problem.
Thanks
My wife and I are considering walking away purely as a financial decision. We live in AZ and are upside down roughly $140K by my estimation. We can afford the payment, but we’ll never recover the equity. We’re just going to start over. You say Fannie Mae won’t let you buy for 5 years. I’ve heard you can go the FHA route in possibly 3 years from the time your foreclosure hits your CBR. Is that not the case?
My girlfriend’s ex-husband is being foreclosed on. She signed the original first and later a 2nd (HELOC). As part of the divorce, she got a quitclaim deed and left him with this multi-family. To date, she has excellent credit and no blemishes from the 1st or 2nd mortgage holders, but I’m sure her ex does. When this property is foreclosed on, will they pick up her name from the loan docs and (a) list her in the foreclosure process and (b) will it impact her credit?
Sadly. It doesn’t matter who’s on the deeds. Credit scores work on the loan docs. If she’s on the loan docs she will take a hit on the credit. Just like she’d be responsible for payments if he were to leave the country – that is if she’s on the loan as a signer. A foreclosure will usually knock someone’s score down 200 points if they have a 800ish score and 100 points if they are near 650-700. It’s hard to pinpoint this exacly.
It all depends on what gets reported. If they report a default on a loan then your score will drop. Call them loan holder to ask how they report the close of this transaction
we don’t qualify for modification loan and the house n will go on foreclosure, I have a co signer and his credit score is or was 750.. how low can his credit score be afected and for how long with the foreclosure.
My husband has filed for a divorce. I had just started to file bankrupcy on 50.000 worth of credit card debt we had aquired-but is in my name. I stoped it when I got the papers for divorce. He is now willing to put a “stay” on the divorce so I can continue with the bankrupcy. (He’d like me to take the credit hit 10 years…) I have no job and two teenagers to relocate… We have a home which we owe as much on as it is worth. Both our names are on the deed-but only his is on the mortage. Am I responsiable for that debt also? What would you suggest we do?
I noted above that you said a foreclosure only appears if the process was completed. My credit report reflects the process was started but was stopped. I have had worked hard to get my credit rating back up but occasionally I do get denials and one of the reasons they list is there is a “Foreclosure” on my report. Should I be contacting the bank to have this removed since the property was sold prior to the foreclosure process being completed?
7 years is time is will stay on both of your files. Many people can recover the credit score points lost in a few years. I’ve met someone who recovered from a bankruptcy in 18 months.
Digging into this, I’ve found that some banks report foreclosures in the middle of the process – i.e. before it’s completed. Go to your county courthouse and get a copy of your cases dismissal. If one was not filed by your old mortgage company, get them to file it. (They are obligated to dismiss it after they’ve received payment)
After you get a copy of the dismissal, contact all major credit reporting bureaus, and dispute your credit profile by reporting the negative entries on your credit report as inaccurate (because they are). Include a copy of the dismissal paperwork. If you dispute the record as inaccurate, it should get removed. Note: this is different from getting the house back once a foreclosure is complete. Once complete it stays on your file for 7 years.
If I foreclose while in bankruptcy chapter 13, will my credit score drop twice as much (once from the bankruptcy and once again from the foreclosure)? I understand that if I foreclose, the Mortgage Company can’t seek the difference from me from the sale of the house while I am in bankruptcy, but can they seek it after the bankruptcy term is completed? I don’t know whether to foreclose or file bankrupt and foreclose…I can afford everything else I have if I only foreclose but I don’t want to be subject to paying any money to the mortgage company when they sell the house…Also I have applied for a loan modification…not sure what combination of things is best…
If i plan to file bankrupt and foreclose while in bankruptcy, should I go get an apartment before all this gets started or is it safe to assume I should be able to get one later on? I am not behind on anything at the moment but my income is 1/3 of what it used to be because of being laid off. I have applied for a loan modification but don’t think it will help.
You won’t really get a double wammy from doing both. That’s because your score will drop pretty far just from the bankruptcy. Not sure you need to do a foreclosure if you are are declaring bankruptcy. Lots of posts on this. Here’s one to consider. http://www.nolo.com/legal-encyclopedia/article-29631.html.
Best to get an apartment beforehand, if you can. It’s not easy to rent an apartment when you are in bankruptcy or foreclosure. Best of luck.
my husband has left the home and has rented an apt…we purchased a home almost two yrs ago….he is willing to le it go into foreclosure…prob is me and my daughter still live here…his name on loan, mine on deed with his…is there anyway i can work to keep my home?? i am eligable for a loan…but he has not filed for divorce yet…prob due to fact i am disabled and he would be somewhat financially obligated to me….what would be some options for me…this is our home and at no fault to myself i am about to be homeless…please help
You had foreclosure proceedings started but you sold the home and paid off the bank in full Can the foreclosure proceeding started be remove from your credit report?
You may want to seek legal aid on this question. Here’s some thoughts. Your name is not on the loan, so you don’t have responsibility — that is the worse case scenario:
when one person leaves a relationship and leaves the other person reeling from the credit impact of a foreclosure. So, if you have a silver lining, you won’t get your credit destroyed. Could you get him to sell you the house in a short sale? You could contact the bank and try to work this out. Sometimes the bank wants to avoid a foreclosure, other times they don’t. The bank may be worried that this is an attempt to get a lower loan and force a foreclosure. I’m assuming your house value is under water. Again, you may want to seek legal assistance.
You had foreclosure proceedings started but you sold the home and paid off the bank in full can it be removed from report and is forclosure proceeding the same as forclosure
My husband filed bancruptcy recently.(ch.13) We realized shortly after that we cannot afford the mortgage, trustee and everything else. We have found another place to move to, but because we filed, we are no longer able to do a short sale or deed in lieu. Do we have any other options other than sherriff sale? If we dismiss the bancruptcy, how long will we have to sell? will the original sherriff sale date be reinstated?
My husband and I have been trying to sell our house for half a year with no luck. He is military and will be deploying overseas in several months. He has a poor credit score from a previous marriage and now we are running out of time (the amount we would have it for rent wouldn’t cover the mortgage and refinancing is not an option in our situation). What is the approximate FICO score drop if he decides to foreclose? Also, will foreclosure have an impact on my FICO score (which is in the high range)? I have never signed on any house/mortgage paper (this house was purchased with his ex wife), This is so incredibley stressful.
The good news is that your credit score will unaffected if you aren’t on any of the loan docs. Sounds like foreclosure is the best option. His score will drop into the 500s for sure. People with scores in the 700s drop into the 500s with a foreclosure but people with a score in the low 600s drop just into the 500s as well.
last year,foreclosure process was started on my property, but i eventually stopped it by paying balance owed in full, and remain current with my payments to to this date. now, it was reported to the credit bureaus as foreclosure, to be reported positive by 2016. am i right in disputing that they should remove the negative report in my file?
I am not sure if this question have been asked before but Can a co-signer be removed from a house that have already been foreclosed on? if so how can I do that if not what are my alternatives I need private student loans for medical school will the foreclosure affect me?
Yes. Many times the foreclosure proceedings are reported. But since you avoided foreclosure it should be removed. Dispute it at the credit bureaus. Get the contact info by checking the Credit Resources tab of this site
I stopped making my payment January 2009. They auctioned my house March 19, 2010. In checking my credit score last month I still had a high credit score and the Mortgage Co., showed all those months from Jan 09 to March 10, as late but once the house was auctioned it shows paid. We checked again this month December, and the foreclosure is now hitting our credit. Can they wait that long to put the foreclosure on there? Why I ask is because I could have been increasing my credit score that much sooner after the auction in March 10, if the bank waited to long. I just want to know if this process is allowed after the property is sold.
Sadly yes. This is quite typical. It takes a while for the records to show up in your credit file. It shouldn’t take this long though, but I’m not sure what recourse you have. Time to start rebuilding your credit and move on from the bummer that they cost you a few months. My two cents.
Can the mortgage company come after you if you were to foreclose? Can they sue you civilly?
No. Your house is what makes a home loan a “secured loan”. Once you get foreclosed. You give up the house and you don’t have to pay.
Planning on doing a Deed in lieu of foreclosure. My ex-husband and I are both on the loan, but I am wondering (he already has a foreclosure from a house we couldn’t sell over a 4 year period so his credit is already shot, but mine is good) if I quit-claim deed myself off, will my credit still be affected?
My FICO is 810. House is upside down by around 35K and need to move due to job circumstances. Stopped paying mortgage Jan ’10. Will my score drop 150-200 points? Friend of mine just completed a short sale and she said her score went from 800′s to 500′s. Sounds steeper than what I have read on the previous posts. Also, I have 65K in credit card limits and pay off my credit cards in full monthly. Will these companies drop me when they catch wind of my foreclosure in months to come?
I still owe the bank in $75000.00 for my unit’s mortgage. However, our housing market is so terrible that I could buy a double size of my unit in around $35000.00. Some of my friends suggested me to buy a new unit without borrowing loan (in cash/paid full) and then walk away from my present unit. That means I return my unit to the mortgage company and let them to foreclosure it. I was wondering what impacts would be on me besides the credit score dropping? Is it wise to do that? If I have another properties, could the mortgage company take it away?
Your securitzation for one property is that property. They can’t chase you for another property. You can follow your friends advice, just know your credit score will be low for a couple of years. If you can wait 3 years to do your next Real estate transaction, then this move may make sense. No reason to stay in an upside down mortgage if don’t need credit again for a few years.
A short sale or a foreclosure can definitely take someone from the low 800s to the high 500s. The higher your starting score, the deeper the fall. Someone with a 610 probably lands in the 500s after a foreclosure too. Credit cards won’t drop you for having a foreclosure. They’ll drop you if you never use their cards or if you stop paying them.
Me and my wife field BK 1 year ago and had a foreclosure 2 years ago our credit scores are around 660 right now we wanted to know is there anything we can start doing now to improve our credit hopeing in 1 to 2 more years to be able to buy a home.
Pay your bills on time and don’t use more than 6% of your credit limit, if that is possible. 700+ is right around the corner for you.
Please help!
My husband had a foreclosure 4 years ago,first loan doesn’t show on his credit but second loan which was with WF is still on his credit.When we called them we were told that it will be on his credit forever, untill he pays that off.That means we will never be able to buy a house?Thank you very much.
Marianna
Hi and thanks for posting. My husband & I renewed our vows 2/14/11. I was pregnant and ill with our fifth little boy – SURPRISE! My husband left out of the blue on Mother’s Day a few months later. He moved in with a woman making a high salary and no kids that he met on FB & texted me when the baby was 3 days old to let me know he had retained an attorney. I was a stay at home mom and 5 months pregnant at the time.
I receive very little if any child support and, although he was a union carpenter in NYC and made well over $125,000 for the past several years, the courts agree with him that because the economy is declining and that the amount he has to pay should be based on about 2/3 of what he was making before-not much when you have 5 kids. I am trying to get my teaching certification reinstated after being home and am working part time but day care costs are too high for me to justify me working many places right now. Our credit score was around 800 and when I just checked it it was 560. My ex has not even paid the court ordered house payments since January and the bank has begun foreclosure proceedings. He has also refused an offer we had on the house out of spite and says he has a car, house, and job and does not care about my credit. I have been fighting this legally), but it’s a slow, time consuming and I am beginning to see very unjust system. Before he left we were never late for anything. Now I am worried about being homeless with my children.Is there anything I can do to help my kids and I find a place to live? Please help. Thank you.
Help…trying to get financed, underwriter wants to do a credit supplement to ADD A FORCLOSURE to my credit report??? She says my file is being held up in the electronic/ automated system, a foreclosure that started but that is about it, she wants to call that old lender and ask them to add it. I was served with forclosure papers initially and filed bankruptcy immediately. I never heard from the bank again but they were notified that I was in bankruptcy. My Chp 7 was discharged only a couple of months after I filed. 3 years have now gone by. The lender says that I need to also wait 3 years from when the foreclosure happened (which was way after the bankruptcy). The issue is there was no foreclosure, no paperwork…nothing (I’m sure I am confused), so I’m calculating from when I see that the title was taken out of my name.
Please help, do I need a new lender (they are through the builder) or am I crazy? This is for FHA, so I don’t want to go somewhere else and it is really the case for an FHA loan.
Once the foreclosure is added to your credit report, you likely won’t get approved. If no foreclosure, then it should NEVER be added. FHA won’t approve you if you have a foreclosure from just 3 years ago. They will want you to wait 5 years. All other bankruptcies are 4 years.
What happens if you close on a short sale (no deficiency) where last mortgage payment was not made (all prior were) but the closing is on the 20th day after payment due? In other words, you close before ever being 30 days late. I assume your credit would be affected by short sale itself but missing last payment would not show up because everything closed before 30 days. Any thoughts?
And followup to last question. I’ve heard that it may be possible to buy FHA home the day after a short sale (in theory) if no payments were missed on short sale. If I missed only one payment ever, the last one before the short sale closed and it closed on 20th day but before 30 days late, I assume this would not be considered a missed payment by FHA guidelines because it did not go 30 days late. Any thoughts?
The short sale will cause such a big score drop, that the 30 day late wouldn’t make much of a difference. I think you are right though, that a 30 day late won’t get recorded though.
Your logic makes sense. Although, I hadn’t heard that you could buy an FHA home right after a short sale. Seems to counter the theory of risk default.
see this… http://ericbramlett.com/can-you-buy-a-home-immediately-after-a-short-sale/ Not sure if it’s accurate. I’m mostly concerned that having a 620 score after a short sale will be very, very hard
You Are Eligible If:
You’re current on your mortgage at the time of the short sale and weren’t late anytime during the 12 months prior to the short sale date.
All your other debt installment payments were current during the same period of time.
Home sold is not an FHA loan.
Sold home must not require a deficiency judgement for the amount sold short.
Credit score of 620 or more.
Short sale caused by an extenuating circumstance such as death of primary wage earner as long as the credit score prior to the circumstance was sufficient to qualify for a loan.
Documented sickness or illness to the borrower that prevents them from making payments.
Job loss and loss of income or the borrower must relocate for work.
Circumstances considered beyond the borrowers control.
If you’re current on your mortgage and didn’t miss any payments during the time of your short sale, you may be eligible to purchase another property immediately after using an FHA loan if you meet all these requirements set forth by HUD. Talk to your real estate agent and a trusted lender about your options if you feel you meet these requirements.
Never mind. I researched it myself and learned that they are only doing this foreclosure process as a formality. The house is still under my name on the public records, albeit as a pending foreclosure. This will be updated to a foreclosure and now belonging to BoA. My credit report should remain the same, as a debt that was discharged in chapter 7 bankruptcy, over 2 years ago. In the event a recent foreclosure does show up, I can (and will) dispute it.
Apparently, BoA is in a certain level of trouble as is, due to “financially wounding” borrowers whose foreclosures occured during a specific time date, such as mine. I received a notice in the mail about it a few days ago. So far, I have not been “financially wounded” by them. This chapter 7 is bad enough and I was finally seeing some healing happen with time. I hope it stays that way.