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
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- 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
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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.