Your car may be long gone, but the effects of a repossession on your credit remain for years to come. Depending on the date of the repossession and how you handle any leftover debt, you may be able to get a mortgage after a repo.
Lingering Debt
Auto lenders repossess vehicles and auction the cars to recover their losses. You're responsible for the difference between the sale proceeds and the outstanding loan debt. Repossessions can appear on credit reports as unpaid, charged-off, settled, or delinquent and in collection, depending on how you handle the account after the repo. Mortgage lenders usually require you to pay off any remaining balance before approving your home loan.
Settling Up
Pay off the remaining balance on a repo before you apply for a mortgage. The effects of a repo on your score diminish over time, and the account disappears after seven years. However, paying before you apply improves your score sooner and shows the lender that you have the money and ability to manage your debts. Be prepared to write a letter explaining the circumstances that led to the repo and that you've fixed your financial misstep.
References
- Consumer Recovery Network: How Best to Repair Credit Score After Foreclosure Repo and Default
- Federal Reserve Bank of New York. "Repurchase and Reverse Repurchase Transactions." Accessed Aug. 14, 2020.
- Manhattan College. "Repurchase agreements and the law: how legislative changes fueled the housing bubble," Page 3. Accessed Aug. 14, 2020.
- New York University. "The Repo Market," Page 5. Accessed Aug. 14, 2020.
- Cornell Law School. "Counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts." Accessed Aug. 14, 2020.
- Federal Reserve Bank of New York. "Tri-Party/GCF Repo." Accessed Aug. 14, 2020.
- National Association of Insurance Commissioners. "U.S. Insurance Industry's Exposure to Securities Lending and Repurchase Agreements Decreased in 2018," Page 5. Accessed Aug. 14, 2020.
- International Capital Market Association. "Frequently Asked Questions on Repo," Page 10. Accessed Aug. 14, 2020.
- DTCC. "Repo Services." Accessed Aug. 14, 2020.
- Robinhood. "What are the near and far legs in a repurchase agreement?" Accessed Aug. 14, 2020.
- Federal Reserve Bank of New York. "Treasury Repo Reference Rates." Accessed Aug. 14, 2020.
- International Capital Market Association. "15. Is repo riskless?" Accessed Aug. 14, 2020.
- National Public Radio. "Repo 105: Lehman's 'Accounting Gimmick' Explained." Accessed Aug. 14, 2020.
- Johns Hopkins University. "The Fed and Lehman Brothers." Accessed Aug. 14, 2020.
- Bloomberg. "Fed Said to Press BNY Mellon to Speed Repo Market Change." Accessed Aug. 14, 2020.
- Bloomberg. "Goldman Sachs Took Biggest Loan from Undisclosed Fed Program." Accessed Aug. 14, 2020.
- Reuters. "Explainer: The Fed has a repo problem. What's that?" Accessed Aug. 14, 2020.
Writer Bio
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.