Mortgage Rate News

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Foreclosure definitely affects your credit score. Indeed, since it is such a huge loan, a form of credit, your mortgage can make a big dent in your credit score. If you lose your home to foreclosure, then you could see a drop of between 200 and 300 points. That is a huge ding — especially if your credit score was already struggling in the mid-600 range. Not only that, but a foreclosure will stay on your credit report for seven years.

In order to avoid having a foreclosure on a credit report, you might try to get your lender to agree to some other options, such as a deed lieu of foreclosure or a short sale. It is important to be careful in these instances, since there is still an impact to your credit score.

Deed in lieu of foreclosure

In this arrangement, you actually return the deed to the mortgage lender. You still lose the house — the lender owns it — but you are forgiven the balance of the mortgage. But when you negotiate this option, you will have to convince the mortgage lender not to report it as a foreclosure. Some lenders will report this as a foreclosure, and that will then impact your credit score. Even if your mortgage lender does not report the transaction as a foreclosure, if it has been preceded by months of late or missed payments, you will find that your credit score has been impacted by that.

Short sale

A short sale is when the lender agrees to let you sell the home for less than you owe on it. The difference is usually forgiven by the lender. Again, if you have late or missed payments as a result of falling behind, you can see damage to your credit score.

It is important to note that after any of these transactions, it will take two or three years before you can buy a home again.

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For the third month in a row, foreclosures have declined. October saw a decline in home owners ready to lose their homes. Thanks to programs aimed at helping home owners refinance or modify their loans, foreclosures have been slowing. However, as BloggingStocks reports, there are still concerns for the future:

The number of homeowners on the brink of losing their homes continued to decline in October for the third straight month, as foreclosure prevention programs helped more borrowers. But foreclosure filings are still up 19% from a year ago, reaching more than 332,000 households, or one in every 385 homes. Rising unemployment could threaten the stabilizing trend.

Programs to help at-risk home owners aren’t much good if these home owners do not have jobs that can provide income. Therefore the continued weakness in the labor market is providing some concern. Advance unemployment data for last week is offering some hope, though. Jobless claims appear to have dropped by quite a bit, bringing the number down to around 502,000. This is the lowest it’s been for months.

However, the fact remains that jobs are still being lost.  They are being lost at a slower rate, but they are still being lost nonetheless. A dramatic reduction in the pace of job losses will be needed in order to provide a solid basis for economic recovery and quiet fears of continued destabilization in other parts of the economy.

At any rate, there is optimism that slowing unemployment will help matters in the housing market, also leading to slowing foreclosures. And, as more people take advantage of government programs meant to help them afford their homes, there is a strong likelihood that they will not have to be subject to foreclosure. And that in turn may help keep the housing market from sliding back into another dip next year.

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There has been a lot of focus lately on the fact that the first time home buyer tax credit has been extended, and and expanded to include some who have not bought a home yet. However, in all of this interest over buying a home, it is also important to consider refinancing. There are a number of advantages associated with refinancing. Dale Siegel, a mortgage expert, offers some advantages of refinancing in her recent book, The New Rules for Mortgages:

1. Lower mortgage interest rate: If you can get an interest rate of a point lower, it can be worth your while to refinance. You’ll pay less in interest, and less overall.
2. Shorten your mortgage term: If you are interested in shortening the amount of time you have to pay a mortgage, you can refinance to a lower term, such as a 10, 15, or 20 year loan. Just be sure you can afford the higher payments.
3. Reduce monthly payment: You can actually reduce your mortgage payment by refinancing to a longer term. This way, you spread out your payment, and lower how much you owe each month. However, you will pay more overall.
4. Consolidate debt: In some cases you can use a cash-out refinance to consolidate debt and make it easier to pay down. Just make sure that you understand the implications, and that you change your debt habits so that you aren’t just getting in deeper.
5. Use the equity in your home: Refinancing can help you access your home equity for use on home improvement projects, or to pay other expenses.
6. Pay down principle: You can also use a refinance as a chance to pay down some of the principle on your home, reducing how much you pay in the long run in terms of interest, and increasing your home equity.

It is important to carefully consider the costs associated with refinancing, and make sure that the benefits outweigh the costs.