A deed in lieu of foreclosure is an arrangement you make with your lender to avoid foreclosure after you’ve exhausted all other options. When you make this agreement, you transfer your house’s deed to your lender. Your lender then forgives the amount left on your loan and agrees to not foreclose on your home. And don’t worry, a deed in lieu of foreclosure is nothing to be ashamed of, thousands of Americans find themselves in tricky situations from job loss to medical bills.
A deed in lieu of foreclosure is normally used as a last resort. And a deed in lieu of foreclosure may be a good option for you if you are:
Deed in lieu of foreclosure | Short Sale | Foreclosure | |
Must get approval from your lender | X | X | |
Ownership transfers to the lender | X | X | |
Ownership transfers to a buyer | X | ||
May qualify for relocation assistance | X | X | |
Takes around 90 days | X | ||
Typically takes 3+ months | X | ||
Can take longer than a year | X | ||
Credit score can drop 50 – 125 points | X | ||
Credit score can drop 85 – 160 points | X | ||
Credit score can drop 100+ points | X |
If after reviewing all of your options and you determine a deed in lieu of foreclosure is right for you, there are the five steps to take:
The good news is that you can still qualify for a mortgage after a deed in lieu of foreclosure.
Each loan type has its own mandatory waiting periods and qualification requirements.
Loan | Waiting Period | With extenuating circumstances |
Conventional | 4 years | 2 years |
FHA | 3 years | Less than 3 years |
VA | 2 years | Less than 2 years |
USDA | 3 years | Less than 3 years |
Life often gets in the way of our best-laid plans, and you’re not alone if you’re facing foreclosure. It happens to thousands of people each year. A deed in lieu of foreclosure could be a way to remedy your situation. So give your lender a call and see if they’ll allow this as an option for you.
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