Most of us spend our entire adult lives wrestling with our credit score in the hopes that we might someday become homeowners. We work and work and work, secure a mortgage, and then move into the house of our dreams…
And then life happens.
Whether it’s our jobs, our personal lives, or even our health, sometimes circumstances dictate the need to foreclose on our homes. But it’s not the end of the world! In fact millions of homeowners who were forced to foreclose when the housing bubble burst are now back in the game: it just requires some time and a bit of common sense. Here are three ways to bounce back from a foreclosure.
Stabilize Your Finances.
The first thing to do is a bit of damage control. Figuring out what went wrong and how to fix it is the best way to get you back on the road to recovery. Start by making sure all of your bills are paid on time. When you eventually reapply for a mortgage, lenders are going to want to see proof that you’ve figured out a way to get control of your finances: give it to them. Also make sure your old mortgage is off the books. If the foreclosure sale came up short of what was owed on the loan, you would be responsible for the difference: be sure and give yourself a clean slate.
Rebuild Your Credit.
The blow to your credit from a foreclosure is going to be sizeable (anywhere from 80-160 points), and therefore you’ll need to take steps to rebuild. Along with time, applying for credit is the other main factor which will once again get your score headed upwards. You’re going to have at least three years before the FHA will let you apply for a loan, and unless you can claim extenuating circumstances like loss of job, divorce, or unexpected medical expenses, it’s going to be at least five to seven years for Fannie Mae and Freddie Mac. The kind of credit with which you apply will also be crucial; revolving accounts (like credit cards) and fixed payment accounts (like a car payment) should help swing the needle in your favor. And don’t apply for too much credit! You don’t want to give the impression you are desperate.
Make A Plan.
Having a plan of attack for the foreseeable future is essential in recovering from foreclosure. What can you do to make the lender feel as if you are once again ready for a mortgage? Start by saving up for a down payment. Chances are very good your new down payment will be higher due to increased risk, and so having that money set aside will be a good way to show fiscal responsibility.
t’s also important to try and display stability in your job. Have you been hard at work for the same employer since the foreclosure, or have you bounced from one job to the next? Stability equals security for lenders. And lastly it’s important to keep an eye on your credit report. You are eligible for a free copy once every 12 months from all three bureau’s, but it might be worth it to spend a few dollars and have more access as you’ll be aggressively trying to bring up your score.
Nobody can recover from a foreclosure over night, but with some patience, and the right mind set, you’ll find yourself back in the hunt for a house before you know it.