Losing your home to foreclosure comes with many personal and financial disadvantages. If you can avoid it, work with your lender to find a different way out of your mortgage problems. Several federal programs are available to help you avoid foreclosure -- your answer may be a mortgage modification, short sale or deed in lieu of foreclosure. To a buyer, foreclosures also present a number of disadvantages. While you might get a great price, you will probably encounter less than desirable conditions inside the property and potential delays on closing.
Losing Your Home
The most obvious disadvantage to a foreclosure is that you lose your home. When you're unable to make your mortgage payments, catch up with any late balances or reach an agreement with your bank to avoid a foreclosure, your house will be taken from you, and you and your family will need to move out. This can cause financial and emotional stress. Finding a new place to live might be difficult, especially if the financial problems that contributed to your foreclosure prevent you from accumulating the cash necessary to rent a new home.
Your credit score will suffer after a foreclosure, and you will have a hard time getting a loan, credit card or other financial product, such as insurance. Realtor.com estimates that most people see their credit scores drop between 100 and 300 points after a foreclosure. The foreclosure will remain on your credit report for seven years, and you won't be able to qualify for a new mortgage through the Federal Housing Administration for at least three years.
Foreclosures carry psychological and emotional disadvantages. When you lose your home and you're faced with uncertainty about your future, whether it's where you'll live or how you'll rebuild your finances, you can experience anger, depression, denial and fear. You might feel as if you have failed, especially if you value your role as a provider for children and other dependents. Feelings of shame and embarrassment are also normal after a foreclosure, and can be a disadvantage to your mental health.
Buying foreclosures comes with its own disadvantages. While most homebuyers believe they can buy a foreclosed home from a bank for a great price, there is often quite a bit of negotiation and flexibility required. You must purchase the property as-is. The bank will not make any repairs or upgrades or offer discounts based on work that needs to be done, as the seller of a traditional home might. Additional paperwork and longer waits are often part of buying a foreclosed home, even though the bank is anxious to sell the property. Finally, there can be no disclosures that protect the buyer of a foreclosed home. You won't necessarily know the history of the property or whether it's prone to a leaky basement, for example.
- Bloomberg.com: Americans Seize Second Chance Mortgages Post Foreclosure
- Realtor.com: Foreclosure Affects Your Credit
- Nolo.com: The Emotional Part of Foreclosure
- LegalMatch. "Foreclosure Alternatives." Accessed June 20, 2020.
- Cornell Law School Legal Information Institute. "Foreclosure." Accessed June 20, 2020.
- NOLO. "Homeowners’ Associations (HOAs & COAs)." Accessed June 20, 2020.
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed June 21, 2020.
- U.S. Department of Housing and Urban Development. "Are you at risk of foreclosure and losing your home?" Accessed June 21, 2020.
- Cornell Law School Legal Information Institute. "Equity of Redemption." Accessed June 21, 2020.
- FindLaw. "Regaining Ownership After Foreclosure: Statutory Redemption." Accessed June 21, 2020.
Cari Oleskewicz is a writer and blogger who has contributed to online and print publications including "The Washington Post," "Italian Cooking and Living," "Sasee Magazine" and Pork and Gin. She is based in Tampa, Florida and holds a Bachelor of Arts in communications and journalism from Marist College.