Losing a home to foreclosure is not something any homeowner wants to face. Unfortunately, there are situations where it’s the inevitable outcome of a financial downturn or poor planning. If you are facing foreclosure, you’ll want to do everything you can to save your home, including receiving HUD-approved housing counseling. A certified housing counselor will help you review all your options and may be able to connect you with payment assistance programs that can help you save your home. In the meantime, learn about the short- and long-term impacts of foreclosure.

Difficulty Attaining Housing

Losing your home to foreclosure can make it more challenging to find stable housing. Homeowners who experience foreclosure will not be able to apply for a new mortgage for several years. And even finding safe, affordable rental housing may be harder than usual, because of the foreclosure’s impact on your credit. Here are some tips that can make it easier to rent an apartment with bad credit.

Long-Term Credit Effects

One of the most significant impacts of foreclosure is the effect it will have on your credit. A foreclosure will start affecting your credit well before you go through the foreclosure process. Your mortgage lender will start reporting late payments at the 30-day mark. Most won’t begin foreclosure proceedings until payment are 90 days or more past due. That means by the time the process is complete, you could have six months or more of late payments on your credit report.

It’s not unusual to see credit scores drop by more than 100 points following a foreclosure. In an interesting twist, the higher your credit score is to start with, the steeper the drop in your score will be. According to FICO, those with credit scores in the excellent range see drops of more than 150 points, while those with scores in the good range see their scores drop by around 100 points.

A history of late payments combined with the drop in your credit score will make it difficult to obtain any new credit in the near future. When lenders  begin to extend credit again, expect it to be at higher interest rates than you’re used to.

Possible Tax Implications

Depending on all the circumstances surrounding the transaction and its outcome, you may end up with tax liability following foreclosure. Be sure to consult a qualified tax professional to ensure you complete your taxes properly and arrange to pay any taxes you may owe.

Future Homeownership

Although it will take some time, it is possible to own a home again after foreclosure. It takes at least five years, and sometimes as long as seven years, for lenders to consider working with consumers who have experienced foreclosure. In some cases, with extenuating circumstances, you may be able to apply for a mortgage again after just three years.

Following foreclosure, make every effort to get your finances back in order. Plan and stick to a budget, set up auto-pay to ensure you are paying all your bills on time, limit your use of credit cards, and start putting money away in an emergency fund. Getting back to basics will help you rebuild your credit and develop positive financial habits that will help ensure successful homeownership in the future.