In many cases, a deed in lieu of foreclosure can be a viable alternative to an actual foreclosure.
When you default on your home loan, the result may eventually lead to a foreclosure and subsequent loss of your home. The sting of default, just from the hit it deals to a credit score, may also be significant. In fact, scores have been known to drop as much as 250 points when foreclosures are involved. That's why considering an alternative means of giving up your home, one of which is the deed in lieu, could make sense.
Effects on Credit
Deeds in lieu of foreclosure also negatively affect credit, though they may not be as severe or for as long. In general, while your credit score may decline as much as in a foreclosure, the overall negative effects are usually lessened.
For example, while the deed in lieu will remain on your report for seven years, you'll usually be able to purchase a home two to three years after the event occurs. You'll need to begin building positive credit, though.
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