- It is never easy to get another mortgage after a foreclosure. Be patient, given time, proper discipline, and willingness, you can own a home again. Follow this guide to purchase a home again:
1. Don’t jump on jobs after foreclosure, stick with just one
If your job is not stable maybe this is the reason you lost your home in the first place. The first step to own a home again is find a stable job and hold on to that. Lenders require stable employment before giving you another loan after a foreclosure. Make it work.
2. Rebuild yourself after foreclosure
Create a safety net. Consider having three to six months of living expenses in a liquid account. Truth is, after a foreclosure, six is a minimum to show stability and that you’re able to pay your bills and mortgage. This could also prove that you can sustain yourself for an extended period if you lose your job.
3. Build a better credit score after foreclosure
Again, this is not easy. The timeframe itself could consume you. After foreclosure, your credit score dropped approximately by 150 points. Raise it back up with perseverance.
Pay bills on time and keep your credit card balances below maximum levels. Details on the foreclosure will stay on your credit report for seven years, but if you prove your money management skills have matured, it will become less of a red mark as years go by.
4. Decrease your waiting time for a mortgage after foreclosure
Usually, you have to wait seven years after a foreclosure before you can apply for a loan again.
However, you might wait only 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
Having unexpected medical expenses
Another alternative if waiting isn’t your thing is obtaining a seller financing, essentially bypassing the traditional mortgage. 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 prove a source of 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—perhaps because they’ve been through foreclosures, too.
5. Be honest about your foreclosure
When getting a new mortgage, don’t lie about your foreclosure. On the contrary, be proactive and reveal the steps you’ve taken to remedy the problems that led to your foreclosure.
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.
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