So you had a repossession of your car. Not a big deal, right? You just  cleared yourself by not having to pay off that car to avoid the high payments you agreed to, or you just don’t feel like paying it anymore, or no longer want that car.

Well, guess what? That decision can cost you the opportunity to buy a home. A repossession is considered a major derogatory event. The only worse things that can happen is foreclosure, bankruptcy, deed in lieu or a short-sale. A repossession will stay on your credit report for 10 years, before it falls off (not the assumed 7 years). However a repossession is seen as a major credit blemish and assigns an extra layer of risk for a prospective home buyer to a lender.

Having a repossession means there is no free lunch. Just because you no longer have or own the car, does not mean you are relieved of the debt. What do you do if you want to buy a home and you have had a repossession?

You have two options. The first is agree to a negotiated settlement with the finance company that financed the car loan. The second (which may be more affordable) is to set up an installment agreement with the finance company, over a negotiated timeframe for repayment. The payments must be made on time for a minimum of three consecutive months in order to make the borrower eligible for financing a mortgage. Once these two options are fulfilled, with pre-approval, can you only be eligible to buy a home, with the exception of using an alternative financing product that will require 20% down or more, and rates will be about 2-3% higher.

If you are considering letting your vehicle go to a repossession, realize that it will negatively affect your ability to purchase a home and will also greatly negatively affect your credit score and risk threshold.

Mac Church is a Sr. Loan Originator with Atlantic Coast Mortgage and can be contacted at mchurch@acmllc.com

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