6 Surefire Ways to Buy a Home after Foreclosure

If your home was foreclosed and you want to purchase another home, improve your chances by enlightening yourself.    A foreclosure is one of the most damaging blemishes on your credit report.  However, that can be changed and you can purchase another home.  Check out these tips to help you overturn a bad situation.

1.  Because a foreclosure will significantly reduce your credit score, not to mention the shame and embarrassment, you must work diligently on improving your credit score.  Pay all your bills on time and use only 50% of your maximum balance

2.  Make no mistake about it, most lenders/underwriters do not care about your previous circumstances.  However, a brief written explanation regarding the circumstances of the foreclosure will be required.  For example, if your foreclosure was due to loss of employment or illness, then an explanation should explain what caused the loss or illness.  More importantly it is necessary to describe how your present situation has improved and the steps you have taken to improve your state of affairs.

3.  One of the best methods for improving your credit would be to pay all of your monthly obligations on time.  If you have more than 5 outstanding balances on your credit cards, you might want to think about paying a few of them off.  Aside from increasing your FICO score, it will also escalate your available credit.

4.  Make sure that your debt ratio is in compliance with most lenders guidelines.  Normally most lenders require debt ratios that are 31/41%.  A 31% top ratio means that your monthly mortgage payment should be no more than 31% of your gross monthly income.  A 41% bottom ratio means that your monthly mortgage payment plus your monthly installment and revolving debts should not exceed 41% of your gross monthly income.  Remember gross monthly income is your income before taxes are deducted.

5.  If you have been stripped of credit due to filing a Chapter 7 bankruptcy, then you will need to build your credit by opening up secured lines of credit.  This means that a secured credit card will be granted using your funds by opening a bank account against those funds.  This is an ideal way to establish your credit to get back on the right track.  Be sure to promptly make payments on time and pay the account in full from time to time so that your line of credit can be quickly increased.

6.  Most “A” paper lenders will not approve a high credit risk borrower because of the foreclosure. What’s an “A” paper lender?  A lender that will only finance credit borrowers with high credit scores (meaning 650+), stability in employment and income, and no bankruptcies, foreclosures and repossessions within the past 4 years.  If you do not fall within this category, you will not be able to obtain mortgage loans with these types of lenders.

However, the alternative would be to seek high credit risk lenders that will approve your loan.  If you have improved your credit and stabilized employment and income, then a sub-prime or high credit risk lender may be the key to open the door to that home you want to purchase.  Though this may not be a perfect solution because of the high interest rate, high costs, and stringent terms, it still may be an option that you may want to consider.  Nevertheless, consider this alternative very carefully.

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