After suffering through a foreclosure, you're faced with rebuilding your life and your credit profile, one step at a time.

Every day, human beings accomplish seemingly impossible tasks. The Guinness Book of World Records names one guy who can do double back flips on inline skates, and another who once broke 317 concrete blocks with his hands in one minute. While your mortgage prospects might seem dismal following a foreclosure, remember that the unlikely is always possible with the right preparation.

Rebuilding from the ground up

If you have plans to own a home again after your foreclosure, credit repair should be your top priority. You may have the urge to start shopping immediately for another mortgage but, in most cases, it's better to put this off for a while. Any mortgage that you obtain now will carry an inflated interest rate which, combined with the corresponding monthly payment, is likely to strap you into a tight cash flow situation, which works against you when you're trying to rebuild.

Realistically, you should plan to use the next 24 months to rebalance your finances, save money, and improve your credit score. Doing so will put you in line to qualify for an affordable mortgage that you can manage over the long term.

The rebuilding process begins with a realistic and conservative budget. Start by listing your income and your expenses. Look for areas to cut back on the money you spend, and divert the savings into debt reduction and funding a down payment.

Once you have a handle on where your money goes, pay attention to your credit report. It's crucial during this time to keep all your accounts current. If you're unorganized, set up automatic payments for your regular accounts, just to ensure that nothing gets overlooked. You might also consider obtaining a secured credit card, or a gas credit card. Charge small purchases, and then pay them off in a few months. Do this repeatedly to prove that you can handle your credit responsibly.

Getting back on the mortgage market

If you stick to your budget and pay your bills on time for two years, you should be ready to start mortgage shopping once again. Ideally, you'll have saved up a sizeable chunk of money-a down payment of 20 percent or more eliminates the mortgage insurance requirement and associated expense. Your efforts to build a consistent credit track record since your foreclosure should also translate to a lower rate.

Comparison shopping is important at this stage. Not all lenders have the same underwriting standards, and some may still get hung up on your foreclosure. The only way to ensure that you're getting the best rate is to interview several prospective lenders. If you don't get the response you want, keep moving forward with your budget plan. You won't be awarded a world record, but you'll eventually win the trust of a reputable mortgage lender.

Published on April 30, 2008