Home Ownership after Foreclosure
A foreclosure is a big setback. It can be hard to shake its bad effects, especially when going through the process of buying a home again. But if the foreclosure occurred at the beginning of the housing crisis, enough time has passed that problematic records can be dealt with, and you can present an appealing mortgage application. Mortgages can be given in as little as three years after a foreclosure if there were extenuating circumstances.
The first thing to take care of is credit. Look through the credit report to find any incorrect data or debts that have been resolved. It can vary from report to report so make sure to check all three credit agencies (Experian, Equifax, and Transunion). You can pull all three reports from websites like creditchecktotal.com. Dispute anything that’s inaccurate or too old to be on the report any more. Many times all it takes is a phone call to the agency reporting the discrepancy.
After verifying your credit score, find ways to improve it. There are many ways to boost it, but the most important way is to keep up with your current payments and loans. Try to eliminate any debt and only purchase items and services that are necessary. Debt-to-income ratio is a part of the mortgage application, so it’s a good idea to keep it low (FHA’s maximum ratio for mortgage payment expense to effective income is 31%).
Total amount of new house payment:
$1000
Borrower’s gross monthly income (including spouse, if married):
$4,000
Divide total house payment by gross monthly income:
$1,000/$4,000
Debt to income ratio:
25%
Pay credit cards and any debts on time. Showing responsibility now is the best way to fix your score. You want to keep all cards with balances at 30% or lower of the full limit on the card. A good way to reduce debt is to apply any extra cash to the principal on one card at a time, go after the card with the lowest balance first or the card that has a ridiculously high interest rate. If you make all extra principal payments focused on one card at a time, you will make more progress, be much more focused, and pay off all your balances faster.
Another essential part of applying for a mortgage is having good documentation. This helps lenders assess your current viability as a potential homeowner. Being able to see that you’re punctual in your bills will increase your appeal. If you’re renting, it’s especially beneficially to have a record of on-time payments.
Similarly, a good tax record is necessary. Make sure to have your taxes accurate and filed. Be above board in everything so that your report is consistent with what’s in your mortgage application.
Basically when applying for a mortgage, you want to be able to show that you’re a responsible candidate. A good credit score, little debt, paid bills, and accurate tax records are all things that will help get the lender’s consent. You want to show that things have changed since the foreclosure. With a little work and responsibility you can fix your financial image. Make sure the next house that you mortgage is affordable and you will be able to achieve the American dream in home ownership once again and enjoy it for years to come.