5 Reasons Why You Can Buy Another Home after Foreclosure
To get approval for a home loan after a foreclosure is going to be a tough struggle….but it can be achieved. If you filed a Chapter 7 bankruptcy to stop the foreclosure, but still lost your home, this may have wiped out your debts but it will have a negative effect on your credit. However, the bankruptcy will give you a fresh start and recuperating will be much sooner.
Nevertheless, foreclosure can have one of the worst effects on your credit report. For this reason, it is important to educate yourself on what to expect and how to get approval with the least amount of pressure. Consider and follow the underlined suggestions to buy another home:
1. Take Immediate Action after a Foreclosure
Needless to say, a home foreclosure is stressful and disconcerting but it also has after effects that can be devastating to those who are accustomed to the comforts of owning and providing a home for their families. Don’t let this calamity cripple you to the extent of doom. Get busy and work on improving your credit and accepting the fact that there are obstacles you must face to get back on track.
If your misfortunes were due to a loss of job, cut in pay, illness/injury, divorce, etc., those are hardships that can be overcome. Often times, mortgage lenders will look at the reasons that caused your hardship and may allow you to purchase another home sooner than you think. For example, if you elected to short sale your home, some lenders will allow you to purchase a home within a 2 year waiting period.
2. Educate Youself and find a Portfolio Lende
Perhaps the most important factor to understand with how lenders determine who they will or will not make loans to is this. Most lenders sell their loans to investors like Fannie Mae, Freddie Mac, FHA and private investors. However, some lenders keep their loans in-house (meaning they do not sell the loan; a.k.a portfolio lending), therefore, they have created their own rules and guidelines. Their guidelines may be less stringent and not quite as harsh, so they are allowed to lend to whom they want and may not be as critical of your circumstances as their investors.
To that end, you just might want to find a portfolio lender that will be indulgent and supportive of your circumstances and approve you for a new home loan.
3. Continue Making On-time Payments to Existing Creditors
One of the best methods to improve your credit after a foreclosure is to continue making on-time payments to your creditors. If some of your creditors still remain after the foreclosure, make an effort to either pay the debt in full or pay off half of the debt to bring your balance down to improve your credit score. You should never owe more than 50% of your outstanding balance. Not only will you owe less but it will help to increase to credit score quickly.
If all of your credit cards were wiped out at the bankruptcy, then start applying for secured lines of credit. The limits will be low but you can quickly build that in a matter of a few months. In addition, applying for a car loan is another tactic that should be considered to build your credit quickly.
It is extremely important to remember to make payments on time and do not skip payments it will not help to improve your credit score.
4. Select Creditors that Offer High Risk Loans
Unfortunately, because of the bankruptcy and foreclosure, you won’t be in a position to choose creditors with the best interest rates, therefore find high risk creditors that offer the best terms with the least amount of interest. These creditors more than likely offer secured credit (meaning you will be using your own money to protect the line of credit) but they will expect on-time payments to prove yourself.
5. Select Mortgage Lenders that Offer High Risk Mortgage Loans
Unless you have substantially improved your credit score with a 680 or better, you can expect to find mortgage lenders that will want a “seasoned” credit history. This means that a foreclosure and/or bankruptcy will need to have a 3-4 year history of elapsed time before applying for a mortgage loan. Even though you may have waited this length of time before applying, most lenders will still offer higher interest rates.
However, if you can afford to pay a slightly higher interest rate, I suggest that you continue to improve your credit score to get the best rate. Higher interest rates may mean taking you back to the road you just left.
In the meantime, most mortgage lenders offer programs that will accommodate high risk borrowers with credit scores lower than 680. My advice is try to get that score up to get the best rate.
Bottom line: It’s not going to be easy on this road to recovery and I’m not going to try and sugar coat it, but I will say this, recovery is happening all over the world and you will always have the choice to make a better future. Good luck, my friends.