How Does a Foreclosure Affect My Home Value?
Can A Foreclosure Affect My Homes Value?
Most people put a lot of sweat and hard work into owning their first home. Indeed, qualifying for a mortgage or other credit facility is never a mean feat.
For these and other reasons, getting a foreclosure notice is indeed a heartbreaking time for homeowners.
At times, you can remedy the situation quickly. In other times, life circumstances make it difficult to do anything to stall or stop a foreclosure.
Often, homeowners in foreclosure have a lot of questions regarding their situation. Here, we look at several commonly asked questions, including:
- How does a foreclosure affect my home?
- What is the effect of a foreclosure on my credit?
How Does a Foreclosure Affect My Home Value? How a Foreclosure Affects a Home’s Value
Homes sold following a foreclosure tend to be sold for less than their actual value more often than not. Conservatively, the decline is placed anywhere between 22% and 28% of a home’s market price under a different set of circumstances.
For this reason, certain companies and individual investors base their business models around scouting for foreclosure homes.
Surprisingly, this extends from the house in foreclosure to neighboring homes as well.
It’s reported that aside from lowering prices of neighboring homes, having a foreclosure in the neighborhood also raises property taxes.
The average decline for houses neighboring home in foreclosure is 4%. Not as high as what the homeowner suffers, but still significant.
Why Property Values Go Down Following a Foreclosure
A drop in surrounding property values is primarily due to appraisal procedures. Appraisers will use several parameters to determine property values. These include the school district and a home’s architectural values.
One more variable used, controversially so, is known as comparable. This means using the value of similar homes within a cluster to assign a cash value to a home.
The home next to yours that is in foreclosure is unlikely to be in excellent shape. The unkempt lawn, zero curb appeal, and so on inadvertently affect your house, and unfortunately, knock off a few dollars on its value.
Foreclosure and Credit
There does not seem to be any reprieve when it comes to foreclosures. Giving up your home seems punitive enough. Unfortunately, it does not end there as your credit rating is affected as well.
The higher your score is at the time of the foreclosure, the more points you stand to lose on it. Once this happens, it will typically take an average of three years of making timely payments to push your credit score back up to what it originally was.
Consumers whose foreclosure is a one-off event and demonstrate good, sound credit tend to recover more quickly. Generally, however, it takes three to seven years to recover fully.
What You Can Do
One of the best ways to protect yourself is by taking swift action once you start defaulting on your home payments.
If you are entirely unable to come up with the required amounts, you might be required to take more drastic steps like selling your home. Contact us here and let us guide you through the process.