This is sometimes an attractive arrangement lenders, because the marked-down value of the property still exceeds what they could expect to get out of a foreclosure sale and is far less costly to process as well. Still, it goes on your credit score as debt writeoff, though the impact is considerably less than a foreclosure itself.
A deed in lieu of foreclosure is when a homeowner who can no longer afford mortgage payments simply signs the property over to the lender. Opinions on this are mixed. Some claim it's better for your credit than a straight-out foreclosure, because you're ending the foreclosure process early and reducing the number of missed payments that show up on your record. Others say it's basically the same thing as a foreclosure and will have basically the same credit impact. Either way, it stays on your report for seven years.
A foreclosure has the most severe impact, although the impact will be far greater on someone with good credit than someone whose credit was already damaged. A foreclosure can drop your credit score as much as points and stays on your credit report for seven years, although the initial impacts do moderate over time. No spam. We take your privacy seriously. Follow us on Twitter and Facebook.
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Licenses and Disclosures. Discover loan offers with rates and terms that fit your needs. Advertiser Disclosure. By The Experian Team. Dear Experian, How will a loan modification affect my credit scores? I've never been late on my payments and have been approved for a modification without any late payments. Dear HBO, You are wise to question the impact of a " loan modification " on your credit history and credit scores.
Loan Modification Vs. Debt Settlement Other programs may be referred to as "loan modification" but could hurt your credit scores because they are actually debt settlement. It's Time for That Loan Whether you are shopping for a car or have a last-minute expense, we can match you to loan offers that meet your needs and budget.
Shop for Loans. Latest Research. Latest Reviews. Get It on Loan Discover loan offers with rates and terms that fit your needs. On the other hand, some lenders may not report a change as a settlement, meaning your credit would be unaffected.
In this case, your credit rating could even improve, because your monthly payment would be reported as decreased. When negotiating a loan modification, ask your lender how they report it - they may even agree not to report it as an adjustment, particularly if you've been a good customer over the years. One particular credit problem has been associated with trial loan modifications under the government's Making Home Affordable Program.
In a trial modification, the homeowner is given a reduced payment schedule which, if maintained for three months, can be made permanent. However, some homeowners are reporting that their lenders are reporting them as failing to stay current on their payments during this period, since the reduced payment schedule is not yet official.
The government has issued guidance to lenders that trial modifications should be listed as current, but on a modified schedule. This may still have a negative impact on your credit, but will not be as severe or last as long as a late-payment report.
If your lender is not reporting your modified payments as current, you or your credit counselor can refer them to the guidelines posted on the Home Affordable Modification Program - Administrative Guidelines for Servicers website.
Finally, it's important to remember that at loan modification will likely have a different impact on your credit than refinancing your mortgage. A loan modification changes the terms of your existing mortgage, while a refinance is simply obtaining a new mortgage on better terms. A refinance should have no negative effects on your credit, other than possibly a small short-term dent due to the fact you've taken out a new loan.
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