Foreclosure and its Effects on Your Financial Future Articles | Foreclosure

By: Guy Starbuck

Foreclosure is a big issue. You're not only facing the loss of your home now. Whatever you do can affect your future ability to buy a house or even a car in future. By losing your home to foreclosure, you can affect your financial future in a very serious way. This in turn makes it difficult or even impossible to obtain new loans for yourself or your children, pay for school or even buy a car regardless of whether it is new or old. It may also end up with you paying higher taxes and higher insurance rates than what you did when you owned your home.

Foreclosure destroys your credit rating for up to a decade, even when you manage to stay focused enough to pay your other bills. It also takes some amount of time to regain your good name as well as the trust of creditors, before you can receive any new line of credit.

When you finally end up being able to get a new loan, it'll most probably be a huge interest rate due to your foreclosure. It is quite usual to pay an interest rate on about 15% or more on the first loan which you receive after your foreclosure.

While it is true that you will eventually end up repairing your credit and you'll be able to apply for another mortgage. You should be ready to place at least 20 % down on any new home and pay a higher interest rate for a shorter period of time. At this stage any lender who is willing to take a chance and give you a loan will try and reduce the perceived risk to them by all means possible.

The inability to borrow money for a certain period of time isn't the only disadvantage of a bad credit rating. Most insurance companies use a consumer risk score when they determine your insurance premiums. This risk score is usually factored together with your credit score and a bad credit score is always equivalent to a high risk score.

If you want a better job, keeping a high credit score is all part of the works. A huge number of employers now make credit checks on prospective employees and they now require a minimum FICO score so that they can get the job. Foreclosure can send your credit rating way, way lower and closer to bottom than you’d ever imagined. This in turn could also keep you away from your dream job.

It isn't only about your credit score; the fact that you lose your home could also lead to you paying more in terms of federal taxes. The reason why is that when a lender forecloses on a property they are permitted to deduct the interest lost from the life of the loan on their federal tax return. After this the IRS can easily come back to the homeowner and require them to claim the same lost interest as income on their personal tax return which then costs them thousands in additional tax.

You should also keep the fact in mind, that when you use your home, you no longer qualify for any homeowners deductions which may have previously helped to reduce your tax and keep it down.

Regardless of all these negatives, the adverse effects that financial foreclosure can have on your life are only further evident from the loss of equity which it claims. A lot of people consider their homes as a huge part of their future. Without their homes they have no safety net with which to use to handle their unexpected expenses and probably their retirement.