Going through a foreclosure can cause a lot of stress, not only emotionally, but financially as well. Unfortunately, foreclosures are common and can happen to anyone under a variety of circumstances. The after effects of a foreclosure can haunt those who lost their homes for years.
A loss of a job, health problems, unexpected tragedies, divorce, and so much more can contribute to a financial hardship resulting in a foreclosure. It may seem impossible to recover, but there is a light at the end of the tunnel. You can be proactive and work your way out to the other side.
Many people who have gone through a foreclosure have purchased new homes and moved on with their lives. But, it does take some education and a lot of hard work to stay on track to ensure you will not find yourself in the same circumstances again.
In many markets, rents have skyrocketed while interest rates are holding steady so there is a ton of motivation to purchase instead of rent. During the housing crash, many lost their homes, however, many of the millions of people who lost their homes are now on track to purchase again or already have.
So, what should you know about purchasing a home again and recovering from a prior foreclosure? We have some great tips and guidelines here to assist you with getting back on track.
Research Your Options
Did you know that you no longer have to wait seven years after a foreclosure to purchase a new home? Previously, this was mandated under housing laws, however, the new requirement is three years. For those who suffered from a hardship such as a loss of job, major medical expenses or other extenuating circumstances, Fannie Mae has allowed less time to pass for a new mortgage approval possibility. If you were able to avoid foreclosure altogether through a deed in lieu of foreclosure or bankruptcy, then you will only need to wait two years.
There were a multitude of circumstances contributing to loss of homes during the housing crash, however, it is always mindful to review your spending habits and see where you can tighten up. In addition, go over your monthly bills and debts carefully. It may be possible to pay down some debt to free up more monthly income to provide a bit of a safety net for your future house payments. Create a solid plan for savings so you have a back up plan. Stock away whatever you are able to each month so you can prepare for closing costs, earnest money, and a downpayment. It is best to be able to pay these items out of pocket instead of rolling them into your financing.
Work on Your Credit
Of course your credit score is important when you want to secure a new mortgage. Your credit score was surely affected by the foreclosure, but there are ways to repair your credit. Do your best to pay off high-interest credit card debt, pay off any judgments or collections, and try not to take out any more debt. It is important to work on paying all debt on time each month and don’t be afraid to ask your current landlord to report your monthly rent payments to one of the major credit bureaus. This will show on time payments and help your credit score.
Review Your Lender Options
Review local lenders and national lenders prior to applying for a loan. Do your research, read reviews and ask friends and family members for referrals. It’s best to stay away from the programs that do not require you to put any money down on the home or those that want you to roll your closing costs and expenses into the loan. Afterall, much of what contributed to the housing crash previously were 100% financing mortgages. If you do not put any money down, you will start off without any equity. Never sign any agreements or contracts unless you fully understand what you are agreeing to. Unfortunately, there are some programs out there who will try to take advantage of someone who ran into financial troubles before.
Seek Out Counseling
There are numerous resources out there to help you with financial counseling. Many are trained to help you navigate through the post foreclosure process. You can reach out to a HUD approved housing counselor or there are many credit repair counselors as well who can help you navigate through creditors, remove old debt, and dispute any credit reporting errors.
Most importantly, discovering patience is essential in recovery after a foreclosure. It is understandable that you want to move on and own your home again, however, working through the previous steps can take some time. Try to resist the urge to jump into a new large debt before you are ready. We cannot foresee unfortunate circumstances such a pending layoff or medical emergency, however, we can plan financially to have a cushion to help us out during hard times. You will know when the time is right. If you feel confident, secure, and have extra funds lying around, then you just might be ready to start over in your new home.
Foreclosures are stressful, but they can happen unexpectedly due to unforeseen financial hardships. Staying on top of your finances as much as possible is the fastest and easiest way to recover from a foreclosure. Eliminate as much extra spending as you are able and you will find yourself much more comfortable this time around. Purchasing a home should be fun. If you do your research, maintain your finances and eliminate extra debt, you will be able to focus more on the fun part of homeownership.