Tips on Buying a House After Foreclosure
There is often a common fear that if you have gone through foreclosure
on one home that you will not be able to buy a home again in the
future. There is no denying the fact that buying a house after
foreclosure can be complicated and difficult, but that
does not mean that it is impossible. Understanding a few basics can help
you to achieve the goal of home ownership again, even if you have gone
through foreclosure.
First, you need to make sure you are able to demonstrate steady
employment. If your foreclosure was due to an employment related
problem, your first step should be to secure a job and stick with it. If
you are already employed, do not make any changes unless it is to move
to a job that pays better. Prospective lenders require borrowers to have
stable employment in order to offer a mortgage loan to an applicant
after a foreclosure. Even if you must stick with a lower paying job, it
can often be worth it if it means that you are able to demonstrate
steady employment to a lender.
You also need to work toward rebuilding your nest egg. It is imperative
for you to have a safety net established. Most financial planners advise
you to have between three and six months of living expenses set aside in
an account that is liquid. If you have recently gone through a
foreclosure, you should have a minimum of six months of living expenses
to demonstrate stability and the ability to pay your bills on time for
an extended period of time if you should lose your job or experience
some other financial difficulty.
In addition, you also need to work toward improving your credit score
after your foreclosure. This can be the most time consuming and
difficult part of recovering from a foreclosure. Your credit score can
drop by about 150 points after foreclosure. Sheer perseverance is
necessary to raise it. Make sure you always pay your bills on time and
work toward keeping your credit card balances below the maximum levels.
A foreclosure can remain on your credit record for as long as seven
years but as you demonstrate more mature money management skills, it
will become less of a problem.
It is also a good idea to take advantage of the opportunity to consult a
housing counselor. Free housing counseling is provided by the U.S.
Department of Housing and Urban Development for individuals who have
experienced a foreclosure. A counselor can assist you with budgeting and
money management. Both can be important in raising your credit score and
helping you to obtain a mortgage loan.
In most instances you would need to wait at least three years after
a foreclosure before you would be able to successfully apply for a new
mortgage based on Fannie Mae rules. You can reduce that waiting period
to two years if you are able to demonstrate extenuating circumstances
that led to your foreclosure. Such circumstance are defined as
circumstances that were beyond your control and which resulted in a
significant, sudden and prolonged reduction in income. Such events might
include a divorce, losing a job, unexpected medical expenses, etc.
You might also consider obtaining seller financing in order to bypass a
traditional mortgage loan. If the seller is agreeable to such an option,
you may be able to lease a home with an option to buy or work out a
mortgage loan directly with the seller. You will typically need a large
down payment and/or reserve funds, but if you have been able to turn
around your financial situation, a seller very well may be amenable to
this. Sellers who are extremely motivated to sell and who own a property
outright are often more willing to consider this type of arrangement.
It is helpful if the seller does not need to liquidate all of their
equity in the home at once.
Always make sure you are completely honest when applying for a mortgage.
Do not attempt to hide or cover up your foreclosure. Instead, be honest
and upfront regarding the steps you have taken to resolve the problems
that initially led to your foreclosure.
Working with a mortgage broker can also help you to find different types
of lenders who may be willing to work with you in spite of your
foreclosure status. Remember that if you stay positive and disciplined,
it is possible to obtain a mortgage and buy a house after foreclosure.
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