3 Things About Foreclosure You Should Know

A lot of people today are having a hard time keeping up with their expenses due to stubbornly high living costs. If you're struggling to make your mortgage payments, you may be wondering whether foreclosure is in your future. Here's what you need to know about foreclosure -- and how to avoid it.

1. It doesn't happen right away

If you're worried that a single missed mortgage payment will cause your home to be foreclosed on, you can stress a bit less. Usually, the legal foreclosure process won't begin until you're at least 120 days behind on your mortgage payments. So even a couple of missed payments won't automatically cause you to lose your home.

If you're worried that you can't make your next home loan payment but you've been current so far, contact your mortgage lender and ask what options you have. If you're experiencing a financial hardship, like a job loss or medical issue that's keeping you out of work, you may be eligible to put your mortgage into forbearance. This allows you to pause your mortgage payments without being considered delinquent on them.

Another option that may be available is mortgage modification. Unlike refinancing, where you apply for a completely new mortgage, modification lets you keep your existing home loan with altered terms. Your lender may let you go from a 30-year to a 40-year mortgage, resulting in lower monthly payments.

2. Lenders don't want it any more than you do

Mortgage lenders will often try to do everything they can to help homeowners avoid foreclosure. And it's not even necessarily because they care -- it's because avoiding foreclosure is easier for them, too.

Mortgage lenders make their money by collecting interest on home loans. They're not in the business of reclaiming and selling homes -- they only do that when they absolutely have to in order to get repaid. So lenders will often work with homeowners to steer clear of foreclosure when possible.

3. It can stay on your credit report for a really long time

A foreclosure can stay on your credit report for seven years. During this time, it may be more difficult to borrow money or get a good rate on a loan.

If you do end up getting foreclosed on, and your credit score takes a hit as a result, there are steps you can take to bring it up. These include paying all future debts on time, paying down existing credit card debt, and correcting errors that appear on your credit report.

You should also know that over time, the impact of a foreclosure on your credit report should lessen, even if it remains there for seven years. In fact, in some cases, you may be able to get another mortgage just two or three years after being foreclosed on (though it's always best to wait until you're truly financially stable to jump back into homeownership). However, you may not qualify for the best mortgage rate due to lingering credit score damage.

Foreclosure isn't a given -- especially today

The good news is that many homes today are worth a lot more than they were a few years ago. Because of this, you may find that you're able to sell your property for enough money to cover your remaining mortgage balance in full. If so, there's no need for foreclosure -- you simply sell your home, pay off your lender, and move on.

However, if your home won't sell for a high enough price to satisfy your mortgage balance, talk to your lender about options that allow you to stay in your home and avoid foreclosure. You may be pleasantly surprised at how willing your lender is to help.