Sometimes homeowners find themselves in a financial bind and unable to pay their home loan. Often this leads to the difficult decision of foreclosing on their home. But this is a serious financial decision that can have long-lasting ramifications to your creditworthiness.


In this guide, we are discussing the real cost of foreclosure, and which states it is the least favorable route to take.


What is Foreclosure?

A home can be going into foreclosure when the owner can no longer pay their mortgage. It is a legal process in which the lender tries to recover the balance of the loan from the borrower — by forcing the sale of the home, which was used as collateral for the loan.

When you foreclose on your home, it has a substantially detrimental effect on your credit score. You should expect a credit decline of 150 points or greater — enough to put most people into the “poor” credit category.


The good news is that a foreclosure doesn’t stay on your credit history forever; in fact, it falls off entirely after seven years. Although this may seem like a long time, it’s important to note that your credit score will improve gradually during the seven years, as more recent favorable credit information takes over.

It’s also prudent to know that most people can reenter the housing market in around two years after a foreclosure — although you should expect to pay a premium for doing so. Consumers with foreclosures in their credit history typically pay higher interest rates than those without. 


Although a strong economy and almost a decade of growth in home prices have reduced mortgage foreclosure significantly since the market crash of 2008,  there are still some states that are experiencing a rise in mortgage delinquencies. Unfortunately, according to CoreLogic’s Performance Insights Report, the mortgage delinquency rate in areas affected by natural disasters experienced some of the most significant rises. For example, after the California Wild Fires of 2018, the delinquency rate in the Chico metro area rose by 21% from the same time last year. Likewise, recent hurricane damage causes the delinquency rate in Panama City, Florida, to rise by 1.9% in the past year alone.

Perhaps more worrying is the other states that experienced increases in delinquencies, which included Michigan, Connecticut, Iowa, Wisconsin, Nebraska, and Minnesota. These states raise concerns about the real estate market as a whole — as the rises cannot be linked to a natural disaster or another obvious event. Could this be a sign of a market correction or looming recession? Possibly, but it’s unlikely. According to the data, the unemployment rate is currently at its lowest level since 1969, at 3.6%. Plus, a steady increase in housing values means that homeowners shouldn’t be too concerned just yet!


If you’re currently finding it challenging to make your home loan repayments, call your lender and explain your financial situation. Being transparent and cooperative will help significantly when discussing your options, such as a short sale. Often a short sale can help you to sell your home without resorting to foreclosure. A real estate professional can give you advice about how the short sale process works and what you can expect.