How does a deed in lieu of foreclosure effect credit?

It should not, you are satisfying the debt by agreement, you are paying with the property versus cash.

The Deed in Lieu itself does not affect your credit it is the late payments preceding the transaction that kill the credit scores.

Also, mortgage lenders look at a deed in lieu equal to a foreclosure.

Also known as a “friendly” foreclosure, this is a good way to keep your credit record clean. In lieu of literally means instead of. You simply sign the property over to the mortgagee (lender).

Somewhat negatively, in that, although you are deeding the property to the bank in exchange for them not foreclosing on the property, the property isn’t worth as much as the outstanding mortgage.

It won’t affect it as negatively as a foreclosure or bankruptcy will….however, are you sure the bank will accept a deed in lieu of foreclosure?

Here are some articles/blogs about DIL:

I am in the mortgage business and I have seen this on credit, it will show foreclosure procedures started, it is also a question on all credit applications, being that I take them frequently the question is as follows, have you in the past seven years had given a deed in lieu of foreclosure, it very much affects your credit.

I am a mortgage lender with more than 20 years experience and can tell you for a fact that a Deed In Lieu impacts your credit history much the same as a foreclosure. Your credit scores will drop a great deal from the effect.

As for getting a new mortgage, per my Fannie Mae Underwriter, if all other credit is maintained in excellent condition and your loan officer can get an automated approval from Fannie Mae’s automated underwriting system you may be eligible 2 years later, if not, it may be up to 4 years before you’d be eligible for a Fannie Mae loan.

FHA is a bit more lenient and will consider a loan after 2 years but there is no guarantee.