Your house has been foreclosed. Now what? What is the next step? What should you and your family do? These are all questions that come to your attention instantly and need to be answered as soon as possible as the effect of foreclosure on families can be quite drastic. If you overlook the effects of the foreclosure process, consequences and how foreclosure affects your credit, and focus only on the psychological effects of foreclosure on families the impact can be long lasting.
The consequences of a foreclosure can follow you and even when you start looking into renting after foreclosure you will see how the impact expands. We’ll take a closer look at exactly what it means to face foreclosure on your home and what can you do to limit the economical, social and psychological impact it has on your life.
What are the consequences of a Foreclosure?
Besides the emotional effects that we’ll cover later in this article, there are several consequences of a foreclosure that affects your family’s economical situation. First of all, a foreclosure happens when the owner of a home takes out a mortgage for the purchase but is unable to make the required monthly payments. For many homeowners the foreclosure process can be taxing both economically, socially and psychologically. The consequences of foreclosure can have long lasting effects on future loans as well as in regards to renting after foreclosure. You would need to figure out how to get a loan with bad credit.
The consequences of foreclosure are:
- Being evicted from your home - losing your home, losing any equity on your home
- Stress, anxiety and the sense of being uprooted
- Damaged credit - for any future purchases, rent or employment opportunities
- Minus in your bank account - in the house lost value you might end up with dept
How Does Foreclosure Affect Your Taxes?
Unfortunately, it isn’t uncommon for homeowners to experience foreclosure. It can happen especially if the homeowner is attempting to purchase a home that is outside of their economical abilities or in case of job loss and inability to keep up with the mortgage payments. Foreclosure can affect the person’s ability to purchase another home, especially right away, as the credit rating is directly affected. There are several ways in which foreclosure can affect your taxes.
The Internal Revenue Service (IRS) sees a foreclosure like a sale, meaning that if you are going through foreclosure the IRS sees it like you are selling your home. You owned it and now you’re selling it. Selling means income. Income is taxable. This can lead to an income taxation on the part of your mortgage that you were no longer able to pay and that has been cancelled, or forgiven.
Voluntary Foreclosure Process
The best possible option in case you find your house being foreclosed would be to start the foreclosure process yourself. When you are faced with the situation in which you are unable to continue to make the monthly payments for your mortgage, it is best to go to the borrowing establishment (bank). This will help you avoid an involuntary foreclosure. While the voluntary foreclosure process is still damaging to the borrower’s credit history and ratings, it is not as damaging as the involuntary foreclosure is. The voluntary foreclosure process will stop the payments, excuse you from future payments and make it possible for other credit cards or loans to be taken before the credit rating is affected.
The banks, as the borrowing establishment often agree with the voluntary foreclosure process seeing as it can retake property easier as well as collect its debt. The loanee takes out another loan in order to afford a smaller house to move to, before the credit is affected, and the bank can take possession of the previous house, sell it, in order to reclaim the borrowed money easier.
Renting After Foreclosure
Going through the foreclosure process does not only affect your taxes as they may increase, it also affects your credit score as it might be more difficult to apply for loans. It can also affect your chances of renting after foreclosure. If you are faced with the situation of being unable to purchase another house after foreclosure by going through the voluntary foreclosure process, landlords might make it difficult to rent.
There are several ways in which you can limit the consequences of foreclosure on your ability to rent. From ways in which you search for rent to when to start renting after foreclosure.
Rent before your credit is affected
In some states it can take several weeks before the foreclosure can be seen on your credit report. You should inquire about this in regards to your state’s approach and take advantage of however many weeks you get. The voluntary foreclosure process can also help as you are the one starting the process, which makes you aware of the timeline of the foreclosure process. However, as many homeowners are unaware of foreclosure until it happens, timing may be tough to pinpoint. Being proactive, however, improves your chances of renting after foreclosure.
Keep other credit accounts safe
As much as it is possible for you, do not delay any other credit payments if you have other credit accounts. One foreclosure is easily explained, but unmet payments on several credit accounts might be difficult to talk yourself out of. Your overall credit score should not suffer more blows aside from the foreclosure process.
Value your income
The value of your income is important when you consider the value of your monthly rent. A general rule of thumb in renting is that you should not pay more than 30% of your income on rent. Knowing this, you should not try to persuade landlords to overlook your foreclosure because landlords are looking for tenants who can meet their payment obligations on schedule and tenants who they won’t have to evict.
Look for rents without credit checks
When you start to look at renting after foreclosure, keep in mind that large apartment complexes generally belong to companies who do background checks as a rule. You have higher odds to find an apartment in small apartment buildings, houses, townhomes or condos if you want to avoid background checks. In time you can even look at rent-to-own options if your landlord might be interested in selling and with leasing agents who venture in the rent niche it will be easy to find a good and affordable rent.
Keep in mind that a foreclosure is not something that you can not overcome. Yes. Its effects can be devastating on your family’s life and social standing, but those are all things that can be handled. As long as you remain together and look after each other, a foreclosure process will be in the past in a matter of years. Many things can actually generate an individual’s inability to meet their mortgage payment obligations, things that are very often out of their hands to manage. The loss of a job, company layoffs, demise of an income earner; none of these things are to be faulted in you. As long as you keep your chin up, face the oncoming storm and use every means necessary to get out of the situation, your life will continue on its way. Find a realtor that can help you along on The Official Real Estate Agent Directory®. This can be a new beginning.
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