There seem to be a lot of misconceptions about how long a foreclosure can stay on the credit report of former homeowners, how long the foreclosure affects their ability to borrow negatively, and how long they will be unable to purchase a new home. Some borrowers believe, mistakenly, that they will never be able to buy another house, qualify for a car loan, or even get a credit card at a decent interest rate just because they lost a house. While the foreclosure will have serious negative consequences, the myths surrounding the issue can be much worse than the actual effects.
The worst news is that a foreclosure will remain on a credit report for the full seven year reporting period. Although borrowers can request the bank to remove the record at any time and delete mention of the foreclosure, banks are rarely interested in doing this, and there is little that could force them to do so. Thus, former homeowners will most likely have to deal with having the negative mark on their credit report for nearly a decade, although its most damaging effects will be felt in the earliest years after the loss of the home.
This is because the longer in time the homeowners are removed from the initial foreclosure, the less of a drag it will be on their credit scores. Missed mortgage payments and then a foreclosure filing can instantly drop a FICO score into the low 500s or even the high 400s by the time the sheriff sale and eviction occur. But as time goes on, as long as the homeowners work on repairing their credit history by paying off any other debts, using borrowed money wisely in the future, and disputing negative or old information contained on the report, their score will begin to improve despite the foreclosure.
When borrowers would be able to qualify for a new mortgage after the loss of a house is almost entirely dependent on the effort they put into repairing their credit and establishing a new, on time payment history. They may be able to apply for a competitive loan within a couple of years after the foreclosure if they are able to show excellent credit since then. Saving up for a true down payment of 15-20% of the purchase price of the home is also important to the banks when considering whether or not to offer a housing loan. But homeowners who focus on credit repair may be able to qualify for a new loan within 2-3 years after foreclosure, while other borrowers may have to wait 4-5 before their credit repairs itself enough naturally.
Of course, if homeowners are able to stop foreclosure before the lawsuit, sheriff sale, and eviction have completely gone through, they will find it much easier to obtain any new credit later on. But, unfortunately, this may not be possible for some borrowers who have no other choice than to give up trying to save their home. The best they can do after this is to work on their credit report and make sure they get a fresh start after losing the property. Although it may take at least a few years to qualify for any new mortgage, this period of time should be used to pay off other debt, establish on time payment history, and save up for a down payment on a new home. While the effects of foreclosure can be severely negative, borrowers also have many options in mitigating the worst consequences to their ability to qualify for credit in the future.