Having a mortgage is not only an effective way to boost your credit score, but it may also allow you to build equity. Eventually, you may be able to use your accrued equity to secure additional financing. If a lender forecloses on the property, though, you are apt to experience a variety of financial consequences.
Foreclosure does not usually happen overnight. If you think you may be getting close to foreclosure, it may help to understand the early phases of the process.
What is pre-foreclosure?
Preforeclosure occurs when you have missed mortgage payments but have not yet triggered the start of the foreclosure process. According to Experian, a major credit reporting agency, a single missed mortgage payment is likely to take a toll on your credit. Regrettably, missing three or more payments may cause your credit score to plummet.
What is a breach letter?
If you have missed a couple mortgage payments, you may receive a breach letter. Lenders often file these notices 90 days from your last payment, although your lender’s timeframe may vary. Typically, you can cure the default and stop foreclosure after receiving a breach letter.
When does foreclosure start?
Although there are exceptions, federal law usually requires lenders to wait 120 days before beginning foreclosure. If you are about to reach this deadline, you may be able to submit a loss mitigation application.
Even though foreclosure requires a multi-step initiation process, it can sneak up on you. Consequently, you should not leave notices from your lender unopened. By being proactive and understanding your options, you may increase your chances of both keeping your home and saving your credit score.