Secret Debt Relief Guide

Whether you’ve foreclosed or opted for a short sale, your credit report can show a poor score of as low as 380. “This is a very humbling thing, when people are foreclosed on,” says financial expert Ilyce R. Glick. “You failed at something very major and it’s going to require a healing process.” For the 5.5 million homes that are expected to foreclose, many Americans worry about how they’ll find a new place to live or ever buy a house again. They wonder how they’ll pay their taxes, regain a reasonable financial plan or start their lives over again. However, don’t feel like there is no hope, as you can steadily improve your credit score over the next few years by taking a few measured steps.

Following your foreclosure and the assessment of your credit report, you may need to downsize your life. Get rid of all material possessions you don’t need, using sites like Ebay and Craigslist to advertise. Keep your savings in an account that will accrue interest to help you save for a new down payment. Another option you may want to consider is a lease-to-own home, which will allow you to rent the house for two to five years before taking over the mortgage payments. This is an attractive option because you won’t be “throwing money out the window” on apartment rent. However, you’ll need to take aggressive steps to ensure your credit score will be up to par once your rental period is over or you will lose your gradual down payment money and be no better off than you would have been just renting. It’s best to take it slow and give yourself some time to breathe before launching into trying to buy a new house right away.

So which is worse for your credit score, a foreclosure or a bankruptcy? Even though bankruptcy stays on your credit for 10 years and a foreclosure for 7, “a foreclosure is very serious to mortgage lenders,” said Ray Hooper, Education and Housing Director for the Consumer Credit Counseling Service. “They’re going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include the house.” Hooper says if you’re receiving default notices but still want to keep your house, then you’ll need to catch up on those missed payments.

You can modify the agreement to a lower interest loan or ask for forbearance, which involves the lender agreeing to suspend payments until you get back on your feet. If you outspent yourself and wound up in a real pickle, then you can ask the lender to hold off on foreclosing until you sell. In some cases, you might not get the asking price and will still owe money to the lender. This procedure is called a short sale. In other cases, you may negotiate a “deed in lieu of foreclosure,” which means you will give your house back to the bank and walk away with nothing, including clear credit.

A foreclosure or a bankruptcy filing is the last thing you want on your credit report. Instead, try for a loan modification if your mortgage is more than 12 months old, three or more payments behind and not already in foreclosure. Sometimes, a financial adviser can help you negotiate these terms with your lender. If you don’t want to renegotiate your whole contract, then you can sometimes take out a small no-interest loan, which you’ll have to pay back after you finish your mortgage. For this option, you can’t be more than 12 months behind and you’ll still have to pay late fees and legal fees. With 5.5 million houses going into foreclosure, the last thing the bank wants is your house, so work with them and explain your situation. Homeowners can improve credit scores after a few missed payments much quicker than the seven years it takes to wipe the slate clean after a foreclosure.