What happens to credit scores after foreclosure

LendingTree report reveals the impact for borrowers

What happens to credit scores after foreclosure

Homeowners who lose their homes through foreclosure may believe that they are facing years of renting before being able to buy a home again.

But a new analysis from LendingTree shows that this may not be the case with many borrowers regaining entry to homeownership in as little as two years after foreclosure – but they will pay a premium.

The analysis from chief economist Tendayi Kapfidze discovered that 7% of borrowers who have a foreclosure end the year with a credit score above 680 while 2% are above 740.

After one year, 30% of borrowers have credit scores above 680 and 46% have scores above 740.

Borrowers are likely to see their credit score slashed by around 150 points or more following foreclosure and the increase is typically at a 10-point-per-year pace.

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For those who want to re-enter the housing market two years after a foreclosure, the analysis shows that that with a 740+ score will pay an average mortgage rate of 5.02% compared to 4.70% for those who have never had or did not reflect a foreclosure in the past 7 years.

That means a $250,000 mortgage incurs an extra $17,135 in borrowing costs for borrowers with a score above 740 seeking loans two years after foreclosure.