Foreclosure is the legal process a lender utilizes to take ownership of your house if you default on a mortgage loan. It's costly to go through the foreclosure procedure and triggers long-term damage to your credit report and financial profile.

Today it's reasonably rare for homes to enter into foreclosure. However, it is very important to understand the foreclosure procedure so that, if the worst happens, you know how to survive it - and that you can still go on to flourish.

Foreclosure meaning: What is it?

When you get a mortgage, you're consenting to utilize your home as security for the loan. If you stop working to make timely payments, your loan provider can take back your home and sell it to recoup a few of its money. Foreclosure rules set out precisely how a creditor can do this, however also provide some rights and defenses for the homeowner.
At the end of the foreclosure process, your home is repossessed and you need to move out.

Just how much are foreclosure fees?

The average homeowner stands to pay around $12,500 in foreclosure expenses and charges, according to information from the Consumer Financial Protection Bureau (CFPB).

The foreclosure procedure and timeline

It takes around 2 years usually to complete the foreclosure process, according to information covering foreclosure filings during the third quarter of 2024 from ATTOM. However, non-judicial foreclosures can take just a few months.

Understanding the foreclosure process

Typically, your lender can't start foreclosure unless you're at least 120 days behind on your mortgage payments - this is known as the pre-foreclosure period.

During those 120 days, your loan provider is likewise required to supply "loss mitigation" options - these are alternative plans for how you can catch up on your mortgage and/or solve the scenario with as little damage to your credit and finances as possible.

Examples of normal loss mitigation alternatives:

- Repayment strategy
- Forbearance
- Loan adjustment
- Short sale
- Deed-in-lieu

For more detail about how these choices work, jump to the "How to stop foreclosure" area below.

If you can't work out an alternative payment plan, though, your lending institution will continue to pursue foreclosure and reclaim your house. Your state of home will dictate which type of foreclosure process can be utilized: judicial or non-judicial.

The 2 kinds of foreclosure

Non-judicial foreclosure

Non-judicial foreclosure implies that the lender can reclaim your home without going to court, which is typically the quickest and most affordable alternative.

Judicial foreclosure

Judicial foreclosure, on the other hand, is slower since it needs a creditor to submit a suit and get a court order before it can take legal control of a house and sell it. Since you still own the house till it's offered, you're legally allowed to continue residing in your home up until the foreclosure process concludes.

The financial repercussions of foreclosure and missed payments

Immediate credit damage due to missed payments. Missing mortgage payments (also called being "delinquent") will affect your credit history, and the greater your score was to begin with, the more you stand to lose. For instance, if you had a 740 rating before missing your first mortgage payment, you might lose 11 points in the two years after that missed out on mortgage payment, according to risk management consulting company Milliman. In comparison, someone with a beginning score of 680 may lose just 2 points in the same scenario.

Delayed credit damage due to foreclosure. Once you get in foreclosure, your credit report will continue to drop. The exact same pattern holds that we saw above with missed out on payments: the higher your score was to begin with, the more precipitously your score will drop. For instance, if you had a 780 rating before losing your home, you might lose as many as 160 points after a foreclosure, according to information from FICO.com. For contrast, someone with a 680 beginning rating most likely stands to lose only 105 points.

Slow credit healing after foreclosure. The data also reveal that it can take around three to 7 years for your rating to completely recuperate after a foreclosure, brief sale or deed-in-lieu of foreclosure.
How quickly can I get a mortgage after foreclosure?

Fortunately is that it's possible to get another mortgage after a foreclosure, simply not instantly. A foreclosure will remain on your credit report for 7 years, but not all lending institutions make you wait that long.

Here are the most typical waiting duration requirements:

Loan programWaiting periodWith extenuating situations
Conventional7 years3 years
FHA3 yearsLess than 3 years
VA2 yearsLess than 2 years
USDA3 yearsLess than 3 years

How to stop foreclosure

If you're having financial problems, you can reach out to your mortgage lending institution at any time - you don't have to wait till you lag on payments to get help. Lenders aren't just required to offer you other alternatives before foreclosing, however are usually inspired to help you prevent foreclosure by their own financial interests.

Here are a couple of choices your mortgage loan provider might be able to offer you to alleviate your monetary difficulty:

Repayment strategy. A structured strategy for how and when you'll return on track with any mortgage payments you've missed, as well as make future payments on time.
Forbearance. The loan provider accepts reduce or hit "time out" on your mortgage payments for a time period so that you can capture up. During that time, you won't be charged interest or late charges.
Loan modification. The lending institution modifies the terms of your mortgage so that your monthly payments are more economical. For instance, Fannie Mae and Freddie Mac use the Flex Modification program, which can lower your payments by 20%.
Deed-in-lieu of foreclosure. Also understood as a mortgage release, a deed-in-lieu permits you to move legal ownership of your home to your mortgage lender. In doing so, you lose the asset, and suffer a momentary credit report drop, however gain freedom from your obligation to repay what remains on the loan.
Short sale. A brief sale is when you sell your home for less than ("short" of) what you owe on your mortgage loan. The cash goes to your mortgage lender, who in return accepts release you from any more debt.

Moving on from foreclosure

Although home foreclosures can be frightening and frustrating, you should deal with the process head on. Reach out for help as quickly as you begin to have a hard time to make your mortgage payments. That can indicate working with your lending institution, talking to a housing therapist or both.