Pre-foreclosure sale: A pre-foreclosure sale is far less damaging to your credit than a foreclosure. In a pre-foreclosure sale, you sell your home – even at a loss – and the lender agrees to accept less than the total amount owed as complete or partial satisfaction of your loan. In some cases, the lender may ask that you sign a note for some or all of the shortfall.
Loan assumption: In a loan assumption, your lender allows a qualified borrower to assume the terms of your home loan. You may know qualified individuals – family members or friends – who are willing to assume your loan.
Deed-in-Lieu: Foreclosure can add accrued interest and expenses to your outstanding debt. As a last resort, you may avoid this by voluntarily turning over the deed for your property to your lender. The deed-in-lieu can help reduce damage to your credit.
Note: Foreclosure, as well as the workout options listed above, may have an impact on your tax liability. PMI cannot provide tax advice. Please be sure to speak to a tax advisor or attorney about your particular situation before proceeding.
Get HelpReinstatement/repayment plan: If you’ve missed payments, but have the ability to pay your bills going forward, you might discuss a reinstatement plan with your lender. These plans allow you to repay missed payments over time to bring your loan current. Most lenders allow you to slightly increase monthly payments until you’re caught up, or may allow you to extend the length of your loan.
Forbearance Agreement: If you are facing a temporary financial crisis, you might consider entering into a forbearance agreement with your lender that would suspend your mortgage payments for a set period of time until your financial hardships can be resolved.
Loan Modification: In a loan modification, your lender agrees to revise the terms of your loan in order to make it easier for you to afford your monthly payments.
Get HelpDeficiency Judgments: In a foreclosure, if your property is sold for less than the amount owed on your mortgage loan (in certain circumstances and depending on state law), the lender may pursue a deficiency judgment against you. If a lender obtains a deficiency judgment, the lender may collect on the judgment through certain legal mechanisms, including levying against your assets and garnishing your wages (again depending on state law).
Credit Score: If foreclosure proceedings are filed against you, the information may remain on your credit report for seven to ten years. Having a foreclosure or bankruptcy on your credit report can greatly reduce your credit score, which may impact your ability to obtain credit in the future.
Get HelpEach borrower’s situation is unique. Under some circumstances, it may be possible that forgiven debt could be construed by federal and state taxing authorities as taxable income. PMI cannot provide tax advice. You should consult with your own qualified tax and legal advisors to discuss your personal situation and any legal or tax implications that might apply.
Borrowing money: Your credit score impacts your ability to borrow money for things like cars, education, retail goods and homes. If you have a low credit score and a foreclosure and/or bankruptcy on your credit report, you may be considered a relatively higher-risk borrower by lenders. This typically means that, if they choose to lend you money, you may have to pay a much higher interest rate on the loan.
Getting a new job: Some employers choose to view a candidate’s credit report to help make an employment decision for a competitive position. In this type of situation, a damaged credit score may impact your ability to be selected.
Renting an apartment: Nearly all landlords will run a credit check on prospective tenants before allowing them to sign a rental agreement. In many states, rental laws are designed to favor and protect a renter once they’ve signed a contract and moved into the property. For that reason, landlords are increasingly selective when choosing new tenants. Potential tenants with high credit scores are more attractive because they appear to be lower risk. Landlords may also elect to raise rental rates and deposits to renters with poor credit.
Obtaining insurance: When permitted by law, some insurance companies will consider an applicant’s credit score when determining their eligibility and premium rates for a policy. A low score can increase the cost of your premium or disqualify you for coverage altogether. The credit report typically tracks two years of payment on credit cards, mortgages, student loans and other debt. It also lists bankruptcy filings, foreclosures, court judgments (like a deficiency judgment) and tax liens for up to 10 years.
Get HelpEach person's situation is unique. The most commonly used credit scoring system is the FICO score. For more information about how your credit score works, go to www.MyFico.com.
