Today I have a guest post from The Digerati Life. The Digerati Life is a personal finance site that offers tips and resources on saving, investing and debt management. Check out the site’s coverage of topics that range from reviews of high interest savings accounts to discussions on balance transfer cards.
If you’ve undergone a foreclosure and lost your home, you might feel that this is the end of the world and you can never become a homeowner again. However, this isn’t something that has to happen. From what I’ve gathered, you can eventually qualify for a mortgage after foreclosure and get a second chance at buying a home. But there are a few things you’ll need to do. It may be a little harder to qualify for a mortgage this time around, but it’s not impossible. If you’ve become a victim of foreclosure or bankruptcy, it is essential that you familiarize yourself with the required steps to better your chances of being approved. Particular events are quite detrimental to your credit report such as foreclosure, bankruptcy, repossession and so on. Luckily, there is hope for anyone to recover from their poor credit circumstances. Given below are some tips that can help you qualify for a mortgage after foreclosure:
1) Boost your credit score.
A home foreclosure carries a number of adverse outcomes. Apart from the frustration, humiliation and loss that foreclosure brings, such an event has huge financial consequences. A foreclosure will severely damage your credit score. Instantly after a foreclosure, it will become hard to get any type of credit, particularly a home loan (as you’d expect). The thing is, any number of factors could have led to the inability of a homeowner to pay off a loan obligation. But life circumstances can change, and over time this same individual may be able to afford a loan later. For instance, if foreclosure resulted from a job loss, as soon as the former homeowner gets a job, he might be able to manage a new loan. The difficulty here is how this individual can become eligible for a new loan. Lenders don’t care so much about the situations encompassing your past poor credit. Their principal concern is to find out whether you’re currently a reliable candidate for a mortgage. Hence, it’s important that you remain patient and that you try to boost your credit before requesting a mortgage. I would recommend checking out myFICO products to help you track your FICO credit score, the most common score that the lending industry uses.
2) Keep on making timely payments to your existing creditors.
The most effective technique for improving your credit situation after a foreclosure is to stay current with your payments to your creditors. For instance, if you carry three credit cards, make sure that you pay your bills regularly. If you can, pay off the balances in full each month. This will enhance your available credit, which is ideal for promptly increasing your credit score.
If you have no credit cards, see if you can somehow obtain a new line of credit. This might be a secured credit card or a car loan. And remember to continue making timely payments. Realize that skipped or delayed payments will harm your credit.
3) Avoid subprime or high risk lenders.
The question here is whether it’s worth borrowing money from a subprime lender. Many borrowers may feel that they should turn to a high risk lender for a loan once they’ve exhausted all their options. But I would be extremely wary of doing this as loans in the subprime category tend to be very expensive. Instead, work to improve your overall financial picture. Learn to budget your money, control your expenses and raise your income, and perhaps you’ll find that over time, you’ll need less credit and have more savings to make the purchases you need. It is true that if you decide to apply for a mortgage when you happen to have a foreclosure or bankruptcy event in your past, then many conventional lenders will likely decline your application. You may be tempted to get quotes from some high risk or subprime lenders who are willing to extend loans to people who are having trouble getting financing. But be very careful! My take here is that it if you cannot afford getting a mortgage via traditional lenders, and if the loans you are eligible for are the most expensive ones, then it’s not worth pursuing a loan at this point. Wait it out until you are able to get a decent loan with reasonable terms. It’s not worth getting into the same bind that cost you your good credit in the past.
Thank you, SVB!