So, you fell upon some financial hardships. You can’t afford your car payment, credit card bills, and utilities. And before you know it, you’ve gotten behind on your mortgage payments and your lender has started the foreclosure process.
Losing your home to foreclosure is no laughing matter – especially if you did everything in your power to avoid the situation. But unfortunately, unexpected events can cause our life to spiral out of control. You can sit back, wallow in self-pity, and beat yourself up; or you can take steps to reverse the situation and get your finances back on track. Talk to people who’ve purchased homes after a foreclosure and they’ll tell you it isn’t the end of the world. You can buy another house – it’s all about timing.
But before you submit your new home loan application, consider ways to improve your credit and qualify for a house after foreclosure.
1. Wait at least one to two years: Believe it or not, but some mortgage lenders approve applicants for home loans immediately after a bankruptcy or foreclosure. A mortgage loan can boost a low credit score. But the interest rates are ridiculous, and borrowers pay a much higher monthly payment. This isn’t so bad for people with the extra income. But if you can’t afford a high payment, it’s best to postpone homeownership until your credit score improves.
2. Open a new line of credit: Once the lender forecloses, expect your credit score to drop. Continue paying your other creditors and your score will gradually increase. But if you want a sudden boost, open a new line of credit. This can include a bad credit auto loan, secured credit card, or collateral-based personal loan. Keep your debts low and pay your bills on time.
3. Monitor your credit report: Wait until your credit score reaches the mid 600’s before applying for a new home loan. Anything less and you’ll pay sub prime rates, and most lenders will require a down payment.
4. Compare mortgage rates: Submit a home loan application to five different lenders and you’ll acquire five different quotes. Some lenders are lenient and they’re prepared to forgive past mistakes – given an applicant’s willingness to improve their credit. Other lenders aren’t as forgiving. They could care less about credit scores, and a foreclosure automatically justifies a higher rate. Therefore, it’s vital to compare interest rates and choose the cheapest home loan.