I get asked that question a lot. The future can seem dark, but there is help available if you know the secrets. See if this works for you.
Foreclosure is often a one-time event that occurs during your lifetime. Hopefully, you learn from your mistakes and take corrective action to own a home again.
Here’s a comment from Barbara Eisner Bayer’s blog on HouseLogic,
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.
That’s good news in spite of the time needed to recover. However, let’s talk about what happened, how to prevent them from happening again, and corrective steps to take to get you into a home again.
- Steps to Home Ownership After Foreclosure-Follow the Yellow Brick Road
- Find and Stick With a Job After Foreclosure
- Strengthen Your Finances After Foreclosure
- Raise Your Credit Score After Foreclosure
- Be Honest About Your Foreclosure
- Reduce Your Waiting Time for a Mortgage After Foreclosure
- Alternatives That Have Worked in the Past
- Next Steps: Work Your Plan
Steps to Home Ownership After Foreclosure-Follow the Yellow Brick Road
If you’re serious and want to buy a home after foreclosure, take a few steps back and look at the big picture about what led up to this point in your life.
This is not a sermon; often you know what went wrong. Quite simply, something got out of control and was ignored, or totally out of your control. Now it comes down to managing things that are under your control: developing a simple plan and follow those steps as closely as possible.
Find and Stick With a Job After Foreclosure
What happened? Did you lose your job and your finances were severely affected?
If you’re thinking of becoming a homeowner again, having a reliable source of income (a steady job) is probably the most important thing for you right now.
And if the job you have is low-paying or a new job, stick with it if at all possible, at least for 2-3 years, which is what lenders look for when considering you for a mortgage loan.
Strengthen Your Finances After Foreclosure
In today’s economy, it’s very difficult to save at all, least of all to save for a mortgage. I get that.
However, my experience tells me that people do what they want to do. How many new, fancy cars do you see parked in neighborhoods that may not be known as luxury communities? How many vacations are taken during the year? Somehow folks find a way to get the things they want, no matter what it is.
Financial planners and mortgage loan officers recommend three to six months of living expenses in a liquid account. That number goes higher if you’re coming out of foreclosure; six months is a minimum to show stability. You want to show that you’re able to pay your bills –including your mortgage – for an extended period if you lose your job.
Raise Your Credit Score After Foreclosure
This is the hardest and most time-consuming part. After foreclosure, your credit score, according to myFICO, 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; 30% is highly recommended. The foreclosure will stay on your credit report for seven years. With that being said, if you prove that your money management skills have improved and matured, it will become less of a negative against as years go by.
Tip: Consult a housing counselor. The U.S. Department of Housing and Urban Development 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. That’s huge!
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 working with a mortgage ‘broker’, who has the power to work with a variety of lenders to find you a loan. The difference being that a broker 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 lenders has 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.
Reduce Your Waiting Time for a Mortgage After Foreclosure
The point I want to make here is that teamwork goes a long way toward helping you reach your goal of homeownership after a foreclosure event has occurred. My TEAM of experts can and will help you with your goal. Together Every Achieves More.
Normally, you would have to wait seven years after a foreclosure before you can apply for a new mortgage under Fannie Mae rules. (Fannie Mae changes rules frequently. You can check the latest rules at Fannie Mae’s site.)
However, you might wait only have to three 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
Alternatives That Have Worked in the Past
There’s one last option available that I recommend if waiting isn’t your thing–you can obtain ‘seller financing’, essentially bypassing the traditional mortgage. The way this works is like this:
- 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.
- This arrangement works well if the sellers may be motivated enough 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. You actually may be helping them out of a bind when faced with paying on 2 mortgages.
You should always consult with a (real estate) attorney for all related transactions to ensure that the agreements are in your favor, and in writing.
Next Steps: Work Your Plan
Depending on where you are in the process, we can arrange to talk about your goals.
Let’s determine what you want to do and include the appropriate parties involved to get started.
Remember: there is no time like the present.