Wondering what happens after the dust settles on a home foreclosure? Unfortunately, after the house is taken back by the lender all is not over.
Let’s look at a few of the consequences and some possible options that newly foreclosed families may face.
Finding a new place to live
The first concern a displaced family faces after a foreclosure is where to live. Often times a family will need to move into an apartment, but keep in mind landlords often require first and last months rent as well as a damage deposit which could add up to several thousand dollars. Another factor that may come into play is your credit score and credit history. When a landlord checks into your credit history and finds a foreclosure, it sends up a red flag as it indicates the potential tenant hasn’t paid their housing bills.
If you find yourself three or four months away from being evicted from your home, it would be wise to save the money you would be spending on monthly mortgage payments and set it aside for a new apartment lease.
Credit score effects
Now that you have a foreclosure on your credit report other creditors, especially credit card companies now consider you a higher risk. Often times credit card companies employ a “default rate” for people with a certain credit score. If your credit score now dips below a certain level they could raise the interest rate that you pay as high as 30 percent. You may also have a harder time getting a good rate on consumer goods such as appliances and automobiles.
If you were able to keep up on your other debt such as credit cards and auto loans during the foreclosure process you may be able to build your score back up within 24 months.
Purchasing another home
One factor that a lot of people fail to realize about foreclosure is that after completion you may not be able to get a loan on a new house for three to five years.
If you are looking at an FHA loan you will have to wait a minimum of three years before you can take out another home loan. A Fannie Mae loan is even longer, they just increased the length of time from four to five years. You may have to rent for at least three years while practicing good bill-paying habits before you can get into a house again.
The tax bill
When debt is forgiven such as a foreclosure it can be considered a taxable event by the IRS. This can happen because the money that you no longer have to pay back to the loan company is considered income.
If you open up your mail box and find that you are hit with a tax bill you still may not have to pay it. The IRS may allow taxpayers to escape the bill if they are insolvent, this is one of those cases where the advice from a certified tax professional comes into play.
Hopefully this article brought to light the possible consequences that can happen after a foreclosure. With proper knowledge and planning the issues mentioned above hopefully can be limited.