What does a foreclosure do to my credit
The answer really depends on what your credit is like now and whether you keep up with the rest of your bills after foreclosure.
If you let your lender take your home and file foreclosure, but the rest of your credit is perfect and you continue to keep it perfect, after 12 months, the foreclosure will have little effect on your credit at all.
Getting a new loan is hard for everyone these days, even with perfect credit, so a new mortgage might not be possible after 12 months. But if you have a down payment and can prove your income, I would bet that someone would approve you.
FHA loans require 36 months out of foreclosure, but my guess is that these guidelines will change as a result of all the foreclosures that are happening these days.
Although everyone's credit score is different, If your credit score is 700 before a foreclosure, you could expect it to drop to a low 600 or high 500 score, even if everything else is kept current.
But if your score is already in the low 600's, you might only see a drop of 50 points or so.
But when you are facing foreclosure, it's important to understand that there are several options for reducing the effect of foreclosure on your credit.
Here are the most popular options to save your credit when facing foreclosure:
Mortgage Modification: This not only saves your credit, but you get to keep your home with a much lower interest rate. We've seen rates as low as 3%, fixed, with a brand new 30 year term. This can drastically lower your payment and allow you to keep the home!
Short Sale: A short sale is when the home is sold for less than the payoff amount. This is for
families who can not get approved for a modification and can't afford the home the way it is. Lenders will allow a short sale because it saves them the time, cost and hassle of foreclosing on the home and selling it themselves. This will effect your credit, but not nearly as bad as a foreclosure.
Deed In Lieu Of Foreclosure: A deed in lieu is when you give the home back to the lender. Keep in mind though, this is not something you can just do, you'll need to negotiate this with your lender and they will have to approve it.
With any of the options above, you'll need to be able to prove that you had a hardship that made the loan payment unaffordable. Generally your lender will have an application or package you'll need to fill out. Make sure you complete this package entirely and that you include all supporting documents that are asked for. This is where most people get turned down. They don't complete the application correctly or they don't provide all the requested documents.
Another major issue with any of the options above (except a loan modification) is that your lender may have the right to sue you for a deficiency judgment. In order to eliminate their right to do this, you must negotiate this ahead of time and get a written agreement that says they will not pursue a deficiency judgment.
The bottom line is that you do not want to go through a complete foreclosure. you need to come up with a solution to minimize the effects of foreclosure on both your life and your credit. There are many more options that may work for you when facing foreclosure, so make sure you do plenty of research to determine all your possible options.
Source(s): 15 years as a mortgage/foreclosure/modification expertSource: answers.yahoo.com