5 Steps to Owning a Home Again After Foreclosure

Article From HouseLogic.com

By: Barbara Eisner Bayer
Published: July 08, 2010

Foreclosure is just a one-time event–with discipline and perseverance, you can get a mortgage and become a homeowner again.

It won’t be easy to obtain a mortgage after foreclosure. But with enough time, discipline, and desire, you can own your own home again. Here’s what you need to do:

1. Stick with a job after foreclosure

Did you fall into foreclosure because of the lack of a steady job? If you did, the first step toward homeownership after foreclosure is finding and holding one. And if you already have one–stick with it, unless you can move to a better one. Note that potential lenders will require stable employment before they’ll give you a new mortgage loan after a foreclosure. Even if it means taking a lower-paying job, it’s worth it.

2. Rebuild your nest egg after foreclosure

Establish a safety net. Financial planners generally recommend three to six months of living expenses in a liquid account, but since you’re coming out of foreclosure, six is a minimum to show stability and that you’re able to pay your bills–including your mortgage–for an extended period if you lose your job.

3. Raise your credit score after foreclosure

This is the hardest and most time-consuming part. After foreclosure, your credit score, according to myFICO (http://www.myfico.com/Default.aspx), probably dropped by about 150 points. You’ll need to raise it back up with perseverance.

Pay bills on time and keep your credit card balances below maximum levels. The foreclosure will stay on your credit report for seven years, but if you prove your money management skills have matured, it will become less of a red mark as years go by.

Tip: Consult a housing counselor. The U.S. Department of Housing and Urban Development (http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm) offers free housing counseling for distressed homeowners with a foreclosure in their past. A counselor can help you with money management and budgeting. Counseling works–an evaluation of a program in Indianapolis discovered that credit scores greatly improved because of education and counseling, and increased average borrowing power by $4,500 per family.

4. Reduce your waiting time for a mortgage after foreclosure

Normally, you would have to wait three years after foreclosure before you can apply for a new mortgage under Fannie Mae (http://www.houselogic.com/articles/how-fannie-mae-and-freddie-mac-save-you-money/) rules.

However, you might wait only two years if you can show extenuating circumstances for your foreclosure, which are defined as “events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” These include:

          •Losing a job

          •Getting divorced

          •Having unexpected medical expenses

There’s one last alternative if waiting isn’t your thing–you can obtain seller financing, essentially bypassing the traditional mortgage. If both parties are amenable, you can enter into a lease with an option to buy, or take a mortgage directly from the seller. You’ll most likely have to show some hefty reserve funds, but if you’ve turned around your financial situation quickly after your foreclosure, it’s worth a shot to deal directly with the seller.

Keep in mind that sellers may be motivated to agree to this if they need to sell and the potential buyers they’ve met with can’t obtain a conventional mortgage–perhaps because they’ve been through foreclosures, too.

5. Be honest about your foreclosure

When you’re ready to apply for your new mortgage, don’t try to hide your foreclosure. On the contrary, be proactive and reveal the steps you’ve taken to remedy the problems that led to your foreclosure.

Tip: Try a mortgage broker, who can work with a variety of lenders to find you a loan. When you work directly with a retail lender, like a bank, they have a limited pool of loans to offer you. But a good mortgage broker–one with a vast network of lendersóhas many options, and may be able to find a mortgage solution if the foreclosure in your past is creating challenges in obtaining one.

If you stay disciplined and positive, the American dream–obtaining a mortgage and owning a home of your own–can, indeed, be yours again. Even after foreclosure.

Barbara Eisner Bayer has written about mortgages and personal finance for the past 16 years for the Motley Fool, the Daily Plan-It, and Nursevillage.com, and has been the Managing Editor for CompleteGrowth.com, Mortgageloan.com, and Credit-land.com. She’s grateful that she now knows where to turn if she ever struggles to meet her mortgage payment.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2010.  All rights reserved.

If you have any questions feel free to call or email

Have a great day,

Keith Parrett
CDPE (Certified Distressed Property Expert)
Realtor
Realty World Pigati and Russell
Direct: (925) 580-4650
Efax: (866) 404-4934
Email: keith at keithparrett.com
 http://www.keithparrett.com/

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2 thoughts on “5 Steps to Owning a Home Again After Foreclosure”

  1. Susannah Harte

    Very true about being honest about why you went through a foreclosure. While lenders are not very forgiving if the reason was the mortgage payment got too high; there are more resons causing foreclosures these days. Job loss, death in family, medical issues are some examples.

    Work with your lender and go through what happened. If for some reason you cannot buy today, you will have a game plan in place to buy later.
    Never give up!

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