The amount of foreclosure activity in the U.S. has been dwindling over the last few months. A report from property analytics company CoreLogic showed there were 47,000 completed foreclosures in May. This is down from May 2013's 52,000. A foreclosure can occur when you fail to make your mortgage payments. It can have serious effects on your finances and you could end up with bad credit. If that happens, the bank that issued the loan will begin the process by sending you a warning letter, and if you miss more than three payments, you could lose your home. This is one possible outcome, and there are a number of other consequences that could happen. Here are a few financial obstacles you could face if your home is foreclosed upon:
Credit score drops
Your credit score will be a huge victim if this situation occurs. A drop of 50 points could affect your chances of applying for loans, and if your score falls by the hundreds, which is the general amount for foreclosures, you will likely be flat-out denied a loan from a potential lender.
Foreclosure stays on a credit report for years
Some lenders may not base their decisions solely on your score, but if other parts of your credit and finances are in disarray, you will not be afforded this leniency. Foreclosures can stay on your credit report for up to seven years and impact your chances of loan approval, even if you repair your score.
Continue to make your credit card payments on time, avoid opening up any new lines of debt and try to keep your report clean of other blemishes, such as collections for bankruptcy, to offset the effect of foreclosure. It's also beneficial to see if there are any mistakes on your report. This could include a number being off for one of your balances or a collection notice being on there even though you were never informed about it. Contact the credit bureau that issued your report and make sure everything is squared away.
Other bills and debts could be neglected
Your credit score will be drastically affected during this time, and other sections of your finances could be impacted. Chances are, if you're having trouble paying for your mortgage, you may also have difficulty dealing with your other bills. Your credit score will be negatively impacted and the debt could be sent to collections if you continue to miss these payments. And with a foreclosure and collections notice on your credit report for a number of years, you will have a tough time repairing your finances. But many bill providers will offer you different repayment options if you're in this predicament, which can help you ease your stress and tackle all your bills at the same time.
You could be dealt a tax bill
Depending on the type of mortgage you have, you may have to deal with a tax bill, but to be sure, seek the advice of your tax professional.