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The Negative Effects Of A Home Foreclosure

Home ownership is often a dream that is shared by countless individuals and families. Owning a home is an achievement that speaks volumes about an individual’s hard work, their success in society and ultimately a place where one can come home from a hard day's work to a place that they can call their own.

Generally home ownership is a process that involves a mortgage. A typical mortgage extends over a period of 30 years with set payments being made by the home owner each month over this length of time. Included in these payments are added costs to the principal payments that reflect the interest paid to the lending institution for the use of their money.

Unfortunately, there are no guarantees in life. Therefore, circumstances such as illness, losing one's livelihood, divorce or other life changing event can have an extreme impact upon a home owner. Sometimes these unfortunate events hamper the ability of the home owner to meet the terms of the mortgage. An option that the lending institution can exercise when payments are not made is through a home foreclosure.

A home foreclosure can have a serious negative impact on the family that is losing their home. In addition to losing their home, there are some serious financial and emotional repercussions that may be experienced.

Financial Implications Of A Home Foreclosure

One of the benefits of home ownership is that your home continues to increase in value. Coupled with the fact that your home is increasing in value is that you are decreasing what you owe on your home by paying your monthly payments. This combination of financial factors is known as appreciation of your home and equity that you are building.

If you experience a home foreclosure the possibilities of losing the appreciated value in your home and your equity may occur. This action may reflect the loss of thousands of dollars.

Another financial implication of a home foreclosure is the possibility of an increase in taxes. This may occur as the banking institution that provides a mortgage to a home owner has to report any losses in interest, as a result of this transaction, to the IRS. In turn, the IRS may require the foreclosed home owner to reflect that loss of interest as income on their tax form. Subsequently, the foreclosed home owner may need to pay taxes on this amount reflected as additional income on their tax form.

Another negative financial implication of experiencing a home foreclosure is the destruction of your credit report. A home foreclosure sends a strong message to potential creditors of your inability, regardless of reason, to fully satisfy the terms of being offered credit. Also, you may run the risk of jeopardizing future employment opportunities as, is the case today, many employers run credit reports on their employees prior to hiring.

Personal Implications

In addition to the financial implications are the personal repercussions involved with going through a home foreclosure. These personal implications can include the feelings of being a failure, being distraught emotionally, the possibility of depression, etc.

It is important to remember that certain events that we experience in life are beyond our control. Therefore, if experiencing a home foreclosure, it is important to seek out the support of other professions and individuals. Those professions could include licensed counselors or other mental-health experts. In addition, there are many support groups that can be very helpful. Those support groups can be found by searching the Internet, by contacting your local mental-health clinic or possibly through a consumer credit association.

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