home ownership

So you have suffered through a foreclosure and are considering when you might be able to be a homeowner in Western Massachusetts again. Most foreclosures are situational, meaning the reason for falling behind was caused by job loss, death or divorce. Once these events are over, most people focus on re-building their financial security.

It is possible to become a homeowner again after going through something catastrophic like foreclosure, but it will take diligence and planning.

In an article for REALTOR.COM a list of five steps was given by REALTOR® Linda Kemp:

“1. Stick with a job after foreclosure Did you fall into foreclosure because of the lack of a steady job? If you did, the first step toward home-ownership after foreclosure is finding and holding one. And if you already have one–stick with it, unless you can move to a better one. Note that potential lenders will require stable employment before they’ll give you a new mortgage loan after a foreclosure. Even if it means taking a lower-paying job, it’s worth it.

2. Rebuild your nest egg after foreclosure Establish a safety net. Financial planners generally recommend three to six months of living expenses in a liquid account, but since you’re coming out of foreclosure, six is a minimum to show stability and that you’re able to pay your bills–including your mortgage–for an extended period if you lose your job.

3. Raise your credit score after foreclosure. This is the hardest and most time-consuming part. After foreclosure, your credit score, according to myFICO, probably dropped by about 150 points. You’ll need to raise it back up with perseverance.

Pay bills on time and keep your credit card balances below maximum levels. The foreclosure will stay on your credit report for seven years, but if you prove your money management skills have matured, it will become less of a red mark as years go by.

Tip: Consult a housing counselor. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling for distressed homeowners with a foreclosure in their past. A counselor can help you with money management and budgeting. Counseling works — an evaluation of a program in Indianapolis discovered that credit scores greatly improved because of education and counseling, and increased average borrowing power by $4,500 per family.

4. Reduce your waiting time for a mortgage after foreclosure Normally, you would have to wait seven years after foreclosure before you can apply for a new mortgage under Fannie Mae rules. Note: Fannie Mae changes rules frequently. You can check the latest rules at Fannie Mae’s site.
However, you might wait only three years if you can show extenuating circumstances for your foreclosure, which are defined as “events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” These include:

•Losing a job

•Getting divorced

•Having unexpected medical expenses

There’s one last alternative if waiting isn’t your thing–you can obtain seller financing, essentially bypassing the traditional mortgage. If both parties are amenable, you can enter into a lease with an option to buy, or take a mortgage directly from the seller. You’ll most likely have to show some hefty reserve funds, but if you’ve turned around your financial situation quickly after your foreclosure, it’s worth a shot to deal directly with the seller.

Keep in mind that sellers may be motivated to agree to this if they need to sell and the potential buyers they’ve met with can’t obtain a conventional mortgage–perhaps because they’ve been through foreclosures, too.

5. Be honest about your foreclosure
When you’re ready to apply for your new mortgage, don’t try to hide your foreclosure. On the contrary, be proactive and reveal the steps you’ve taken to remedy the problems that led to your foreclosure.

Tip: Try a mortgage broker, who can work with a variety of lenders to find you a loan. When you work directly with a retail lender, like a bank, they have a limited pool of loans to offer you. But a good mortgage broker–one with a vast network of lendersóhas many options, and may be able to find a mortgage solution if the foreclosure in your past is creating challenges in obtaining one.”

These are all great tips, but I think that the most important thing is to reduce your spending and expenses. Discipline yourself to save money to pay down credit and increase your savings. This will give you confidence in your own ability to re-enter the home owner market and will give the lender assurance that you are responsible. You will be surprised how many things are just not that essential when you start giving yourself a spending diet. Austerity can be very refreshing.

Above all know that you are far from alone in this situation and there are lots of kind and knowledgeable people out here willing to help you repair the damage done and move on to the next chapter of your life. Please let me know if there is anything I can do assist you. I am just a phone call away: 413.575.3611.

photo credit Pink Sherbet Photography on flickr.com