Updated on November 24, 2021
Can Get Out of Pre-Foreclosure Affect My Credit Score?
Getting out of Pre-Foreclosure is not as hard as you might think. In fact, it can be very easy to do if you have some real help. Many people are on the road to losing their homes because they missed mortgage payments, and the lender is not taking any responsibility for this. But getting out of Pre-Foreclosure is not impossible if you have the right information.
If you do have some options for getting out of pre-foreclosure, you need to realize that all of them mean facing the music head-on. The most commonly used term to describe what happens in a short sale is that of a sell-out. However, you might be hearing about some other terms such as a deed instead of foreclosure or an offer in compromise. These are just variations of a complete sell-out and should not fool you into thinking that is what will happen to you if you go with one of these methods.
Another option to get out of Pre-Foreclosure is a loan modification. This is not really a solution but another option to prevent further damage to your credit. When you have a good history of making your payments on time then a loan modification is possible. Lenders are happy to give their clients this chance so that they do not have to face the trauma of losing their homes to foreclosure. The lending institutions are in the business of lending money, and if they feel like you are not likely to honor your loan agreement they might be willing to negotiate new terms.
An alternative to a loan modification is a short sale. The short sale does not stop the foreclosure but it is considered by the courts as a sort of second chance for the homeowner to pay back the mortgage. A short sale can sometimes be negotiated much easier than a foreclosure because the lenders usually prefer to sell a home with a mortgage payment still outstanding rather than the entire home going into foreclosure. It is another option to get out of pre-foreclosure.
Getting out of Pre-Foreclosure can hurt your credit score. This is true whether you have just missed payments on your mortgage or you are facing foreclosure. When you get out of pre-foreclosure your credit score drops. It will take several months for the impact to become noticeable, but it will happen. Lenders will consider you as a higher risk when you go through a foreclosure process rather than a loan modification.
If your lender agrees to a loan modification or a short sale and you get out of pre-foreclosure then your credit score will improve slightly. It is not enough to make a difference but it will help. The lender has agreed to defer the rest of your loan until you have been able to pay off the mortgage. In most cases, the late payments and other problems will have been corrected before you get into a loan modification or a short sale.
Your credit score will be lowered by receiving a notice from your lender stating that you are in default. Your lender may require you to make some type of payment arrangement. If you receive this notice and you agree to the terms, then your credit score will improve slightly as long as the payments are made on time. Getting out of Pre-Foreclosure does not affect your credit score, but many lenders look at it as a measure of your ability to make payments.
If you want to be able to stay in your home and work with your lender to get your mortgage modified, then you need to act quickly. You can try to negotiate with your lender yourself, but lenders tend to work with those who are organized and who know their situation. Using a service to help you with your mortgage is helpful because they do all of the negotiating and they keep all of the paperwork in order. Using an agency will allow you to be protected from the stress of getting out of pre-foreclosure.