Since the financial crisis began in 2008, 4.5 million foreclosures have occurred nationwide, according to CoreLogic, an information and analysis firm. The people who experienced foreclosure firsthand know that it takes both an emotional and financial toll. Yet for many, becoming a homeowner again is a high priority.
By taking steps to tidy up your credit report now, you could be in a good position to become a homeowner again more quickly than you think.
Know your options
Although a foreclosure remains on your credit report for seven years, programs like the Federal Housing Administration’s (FHA) Back To Work program mean qualified buyers could be stepping into their next homes in as little as one year post-foreclosure.
“Although the credit and lending landscape is always in flux and subject to change from external conditions, not to mention specific underwriting requirements of individual lenders, once credit is rebuilt, consumers should remember to look for new home-buying opportunities through government sponsored programs, as they may offer favorable terms,” says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling in Washington, D.C.
“Whether it is an FHA-backed lender or a local nonprofit home-buying program, qualifying credit scores are often a bit lower,” Cunningham says. “Also, nonprofit housing agencies usually offer financial education classes and services to help educate the consumer and move the home-buying process along.”
Take steps to restore credit
Restoring your credit after a foreclosure is similar to restoring it after a bankruptcy. In both cases, your report has a blemish that significantly lowers your credit scores. Lower scores mean it will cost you more to borrow, but with the right approach you can begin a path to restoring your credit so your interest rates will be lower in the future.
Steps for rebuilding your credit:
Check your credit report. Get a free credit report from AnnualCreditReport.com, and work with credit agencies to have errors removed.
Create a budget and follow it.
Pay bills on time.
Add different kinds of credit.
Keep balances low.
Try a secured card, which is reported to credit agencies.
Be on guard for fraudulent "credit repair" companies.
NeighborWorks recommends working with U.S. Department of Housing and Urban Development (HUD)-approved housing counselors to help you rebuild your credit so you can buy your next home. It’s not uncommon to develop other issues, such as high credit card balances, along with foreclosure. In this case, create a workable budget and stick to it to resolve these problems.
Housing counselors will help you think through your current challenges and understand the details of your next homeownership opportunity. With their help, good budgeting, planning and savings, you’ll be enjoying your new home before you know it.
This content is educational in nature and is not an advertisement for a loan or business solicitation. It does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
If you notice an unexpected change to your credit score, don’t panic—it’s probably not because you’ve been accidentally neglecting to pay your cell phone bill or an anonymous benefactor paid off your mortgage
It takes more than just plunking down a 20% down payment to call yourself ready. You have to be financially, emotionally and mentally prepared—or risk becoming one of the one in four homeowners who feel buyer’s remorse.