It’s tough to obtain a mortgage after a foreclosure. In fact, I’d liken it to a 3+ hour sumo match against a well prepared opponent. But with time, discipline, and desire, you can own your own home again. Just like winning that sumo match against what’s his name.
Here are 4 steps you need to follow:
-Stay on the job after a foreclosure
Did you fall into foreclosure because of the lack of a steady job? If you did, the first step toward home-ownership after foreclosure is finding and holding one. If you already have one—stick with it, unless you can move to a better one. Note, potential lenders will require stable employment before they’ll give you a new mortgage loan. If it means taking a lower-paying job, it’s going to be worth it.
-Rebuild your safety net
Financial planners recommend three to six months of living expenses in a liquid account, since you’re coming out of foreclosure, six is a minimum to show stability and that you’re able to pay your bills—including a mortgage—for an extended period.
-Raise your credit score after foreclosure
This is the hardest and most time-consuming part. After foreclosure, your credit score has probably dropped by about 150 points. You’ll need to raise it back up. Pay bills on time and keep your credit card balances low. The foreclosure will stay on your credit report for seven years, if you prove over time your money management skills have improved, it will become less of a red mark as time passes.
-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.)
There is an alternative if waiting isn’t your thing—you can obtain seller financing, essentially bypassing the traditional mortgage. If both parties agree, 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 large 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.
Obtaining a mortgage after foreclosure is tough, but If you stay financially disciplined, the American dream of owning a home can be yours again! Thanks for reading, explore other great topics on the Real Property Management blog.
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With 20+ years experience in residential and investment real estate sales, property management and consultation. Matt Pelton is a licensed Realtor working as Sales Manger at Real Property Management. Contact him directly at [email protected] or on twitter @CincySalesGuy