Buying again after foreclosure

Posted By @ May 30th 2012 9:10am In: Posts for Buyers

"Can I buy again after foreclosure?" This is a question I seem to get a lot. When the real estate market took a turn, people found themselves in some very difficult positions.......and we've all heard and seen the rest of the story. So past is past and now we need to figure out how to move on and repair the damage. To answer the question simply, yes, you can buy again after a foreclosure. Is it as easy as simply going and filling out another loan application? NO! It will not be an easy process but, then again, getting a loan closed right now isn't really an easy process for anyone but that's another topic for another day. Back to the topic at hand, HOW do you get another mortgage after going through a short sale or foreclosure?

Wait 7 years. NO! You don't have to wait 7 years to be able to have a home again! This may be the case for those who choose to sit and wait it out and start all over again from square one with their credit but it is not the case for those who choose to be proactive and take the proper steps to regaining and repairing their credit in a responsible manner. Here are 5 quick tips on how to achieve your dream.......the right way. :)

  1. FACE THE TRUTH! Get a copy of your credit report and look it over good! Be sure that you get one that includes information from all three credit reporting agencies. Experion, Transunion, and Equifax are the three reporting agencies that are used to calculate your FICO or midscore. Be sure that you have no other accounts that are delinquent and check for any incorrect information.
  2. HEAL THE DAMAGE. If you have anything on your credit report, aside from your short sale or foreclosure, that has a red mark on it, fix it! Call the collection agency or the account holder and make arrangements to pay or ask for a settlement amount. Be aware that if you settle for a lesser amount than what it owed, it will be noted on your credit report. Even though you settled, it will still be a paid account and will repair itself much faster than a negative unpaid rating.
  3. CREATE A BUDGET. Sit down with ALL of your bills and your income to do this. You need to list everything that you spend monthly including those small things that add up monthly. Include any payment arrangements that have been made in an effort to repair your credit and set a bit aside for savings. Even if it is only $5.00 a week, that is still $20.00 a month and over time you will be able to add more to that. A small start is better than no start at all.
  4. CREATE NEW CREDIT. I know, this one sounds crazy, but it works! The two main reasons people get denied mortgages are poor credit or lack of credit history! Having a good credit history established will prove you to be a responsible borrower and lenders will see you as a good risk. I don't mean go and get any credit card that you can. That is considered bad credit. There are two kinds of credit, secured and unsecured. Unsecured credit would be medical bills, department store credit cards, major credit cards, etc. Secured credit would be auto loans, home loans, student loans, etc. (Student loans are actually unsecured lines of credit but they are NOT dismissed in bankruptcy and will remain on your credit always until they are paid. This is why I placed them in the secured credit category). Obtain a credit card through your bank or credit union and start there. You will have a small credit limit that will be easier to pay off. Use it every month to buy gas or groceries, something that you would purchase even without having it. Pay it off at the end of every month and go from there. NEVER keep a balance over 50% of what your limit is.
  5. STAY ON TRACK. It's true it will take a few years (more than likely 3 after full foreclosure or short sale) but if you stay on track and create a habit of knowing your budget, saving your money, and preparing for the future, your dreams of home ownership will once again become a reality.

Two things you should know before I go. One, a lender will ask you about your foreclosure or short sale. Those who were responsible borrowers with a true hardship will be given more consideration. This would include those who lost their job and were unable to pay, needed to relocate and could not sell their home for what was owed, and those who had a death in the family, divorce or a true hardship that hindered their ability to sell. If an effort was never taken to try and sell the home or no explanation was ever given as to why the foreclosure or short sale took place, you will have a more difficult time obtaining a mortgage in the future. Credit history also plays a huge role. If your history was clean up to a certain point and that can be noted, then that will be taken in consideration.

Finally, a short sale is NOT better for your credit than a foreclosure. They both do the same damage to your credit. When you do a short sale it shows a willingness to work with the bank and helps record the fact that your home was no longer worth what you paid. However, when a lender goes to approve you for a mortgage in the future, you are just as big of a risk as someone who had a foreclosure. Short sales save the banks time and money, not your credit. If you do a short sale, be sure that you get a debt forgiveness letter from the note holder in writing at closing so you are not responsible for any debt in the future.

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