Buying a house after foreclosure takes some planning, determination and a bit of patience, but it can be done. If your house has already foreclosed and you are wondering how you will ever have your own home again, there is hope. I hope this article sparks a plan that is right for you and encourages you not to give up on home ownership once again. With good planning it may not take as long as you might think. If your house has not foreclosed yet, you may want to find out what options there may be to avoid foreclosure. A good resource to find ways to avoid foreclosure is http://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure
If foreclosure has already happened and you are already dreaming of someday buying and owning your own home again, please read on. No doubt you are having an array of unpleasant emotions regarding losing your home and maybe feeling a bit discouraged, even embarrassed. Feel those things if you must, but only briefly. Things in life happen and we can’t always control everything. It does not make you more or less worthy than anyone else. Losing your house is not the end of the world nor does it have to spin you into hopeless discouragement. Mourn the loss of your house, but move on. Whatever good you can find about it, find it. This can be a wonderful time of regrouping and growth, which can make things better for you. I am not suggesting that this will happen overnight, but focus on the good and work on the areas that need improving, so you can help prevent this from happening again.
Some of the things you need to know in preparing for home ownership again in the future…
Generally, the current rules are (these are always subject to change and do sometimes have exceptions) that Fannie Mae loans require the foreclosure to be 4 years old and 10% down on a new purchase or 2 years and 20% down. Conventional loans as well. FHA loans require 3 years post foreclosure and 31/2% down. They may be a little easier to obtain, but all of these will require proof of extenuating circumstances and proof of timely bill paying since the foreclosure.
So basically, the steps to prepare for buying a home again after your foreclosure are:
1. Work through the loss emotionally in healthy ways. Start making a plan to take care of yourself and your family, obviously having a secure place to live, if you haven’t done this already.
2. Determine, based on your circumstances, whether bankruptcy is imminent and seek competent advice regarding doing that after your foreclosure is official. Note: If you have a second mortgage, it will not be included in the foreclosure. It will become unsecured debt.
3. Look for any ways that you can decrease your expenses and change your lifestyle accordingly. Don’t think of it as loss, maybe just change and find ways to make it fun even. Fun doesn’t have to require money.
4. Start working on building a “baby” emergency fund of $500-$1,000. This fund is for just what it is named, nothing else. Maybe keep it in a separate account.
5. If you have debt that you plan to repay, then make a plan to get rid of it and do not incur more. Many respected financial experts say to target the smallest one first. Once it is gone, then take the payment you were making to that one and add it to the next smallest debt. Continue this until all debt is gone. Get rid of those credit cards. I love Dave Ramsey’s material and strongly urge you to take his Financial Peace University program. It is likely offered at a church near you. The paying off of these debts should help your credit report down the road and will better your new home loan arrangement.
6. Pay your bills on time and keep those records in a safe place or easy retrieval later on.
7. Find ways to increase your income, maybe find a new job field that is more stable and something more enjoyable for you. This could be the time to find a career that brings not only more money, but more enjoyment.
During this time and all you are dealing with, it can easily make your life out of balance, but it can also help to bring your life more in balance, but it will take some effort. Whatever path you decide to take, be sure it is keeping that balance as much as possible. The more money you can put away in your new house fund, the better obviously. It could bring about your new home sooner. Lenders are pretty stuck on the minimum 3 years after a foreclosure, but depending on your chosen path, there are potential ways to shorten this or at the very least be ready when the 3 years rolls around. The larger the down payment, the more likely lenders will give you a loan and a good rate. If looking to find ways to make money on the side or even a career change, be sure to do your due diligence. If your goal is to purchase a home again as soon as possible, then doing a business on the side for some extra money could be more appropriate as getting a loan while self employed can be challenging. Lenders don’t tend to like self employment income, unless of course, it has been stable for 2 years and you can show good income for the previous 2 years.