Losing a home to foreclosure can be devastating, but even worse are the financial consequences. As if losing a home is not enough, the loss can lead to bankruptcy, and it certainly creates an uphill battle financially for years after the loss. If you are part of the majority of people affected by foreclosure who want to own a home again, know that there is hope, especially now that so many people have fallen victim to foreclosure. Here is what you need to know about getting your finances ready to buy a home again:
Know your time limitations
In the case of bankruptcy, the bankruptcy must be discharged before speaking to a mortgage lender. This rule also applies if you are in any type of credit counseling in which a program has taken over your finances. The average waiting period to buy a home after your bankruptcy has been discharged is 24 months. Some lenders may consider you before this, but they will charge outrageous interest fees.
Time limitations vary after foreclosure due to many different factors. FHA may approve loans after only three years, but private lenders tend to have longer waiting periods before they will approve loans. All lenders are more lenient with the waiting periods if you lost your home due to extenuating circumstances rather than recklessness.
Clean up your credit report
It is not uncommon for there to be mistakes on your credit report, but it is up to you to report them and be sure they are corrected. The Fair Credit Reporting Act provides you with a process for having the errors on your report corrected.
Prove you are trustworthy
Some banks offer those with bad credit history a secured credit card. The bank will create a monthly credit limit based on how much you have in your account. If you can, pay more than the monthly minimum. This reduces the amount of interest you pay and proves to lenders you are responsible.
Another way to prove yourself to lenders is to get an installment loan. This is a loan where you pay an installment each month and it helps boost your credit. Use a loan on your next big purchase (ex. new car). Scale back the amount you spend so you can easily afford the payments, and can even pay it back faster than necessary. This will show that you have learned your lesson and are once again capable of responsibly managing money.
Although it may seem like it at times, buying a home after bankruptcy or foreclosure is not impossible, but you do need to take action to improve your chances. Follow the guidelines above to move the process forward, but most importantly, be patient. Remember, it is not a quick process, and the time limitations are there to protect the bank, but also to protect you from taking on more than you can handle too soon.