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Finding a Mortgage After Foreclosure
Foreclosure can be a dark cloud hanging over your credit score for years, especially if you want to purchase a home. However, if you have a poor credit score because of foreclosure, you don't have to be stuck with a bad credit mortgage with an unreasonably high interest rate.
During the first two years after foreclosure, your options will be limited when shopping for a new mortgage, as lenders generally won't approve a loan. However, this gives you the time to go into action.
Steps for damage repair
There are things you can do to reverse a bad credit rating. Pay your bills on time and negotiate a lower rate of interest on your credit cards. Ultimately, lenders want to see a dependable track record.
Purchasing a new home means saving for a down payment all over again. And mortgage interest rates following a foreclosure may be outrageously inflated, up to three or four percentage points above current rates. However, if you can put 20 percent down, you can improve the terms of a mortgage and avoid PMI (private mortgage insurance). Unfortunately, if you have a credit score of 600 or less, you'll generally have no choice but to put down between five and 20 percent, anyway.
The key to lowering your mortgage interest rate, therefore, is to increase your savings rate. In order to do this, patience is key. Draft a budget that includes stashing a hefty amount of your monthly income into a savings account. Then, stick to the program.
Since mortgage lenders review the last three years of your credit history, it's a good idea to document in writing why you have a foreclosure on your credit report. Track your credit, and keep trying to improve it.
Be a smart shopper
Ultimately, savvy shopping is the key to a new loan. Compare prices online to get the best deal.
Keep your spending in check, and you can secure a bad credit loan despite the foreclosure in your credit history. Once you do, the clouds will disappear, allowing the sun to shine brightly on your home.
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