Even though buying a home after a recent foreclosure is possible,
homebuyer should not apply for a mortgage blindly. Because of your current
credit standing, many lenders are ready to take advantage of you. Your
options are limited. Nonetheless, this does not mean you have to accept
a terrible mortgage loan.
Why Does a Foreclosure Occur?
Homes are foreclosed when a homeowner is unable to repay the mortgage.
On average, mortgage payments have to be three months late before a
lender begins the pre-foreclosure process. If the homeowner is able to
acquire funds, the lender will stop foreclosure.
Many factors contribute to a homeowner's inability to repay a mortgage
loan. For starters, living beyond one's means will make it harder to
maintain regular monthly payments. Sadly, many people fall in love with a
home they cannot afford.
Furthermore, some homeowners do not take into consideration utilities
and other expenses that come with owning a larger home. Acquiring
excessive credit card debt may also result in less disposable income.
The Disadvantages of Buying a Home after Foreclosure
For the most part, many lenders will not approve a mortgage loan
immediately following a bankruptcy. In their estimation, you are a risky
applicant. If you were unable to make regular payments three months prior,
the odds of a future loan defaulting are high.
Naturally, circumstances do change for the better. For example, if loss
of employment or illness contributed to a foreclosure, you may be in a
better position to afford a mortgage six months after a foreclosure.
Still, there are disadvantages to obtaining a home so soon.
Mortgage interest rates following a foreclosure are outrageously high.
Because most traditional mortgage companies will not approve your loan,
you may be subjected to interest rates 3 or 4 percentage points above
current rates. This will increase mortgage payments by a few hundred
dollars.
Best Approach for Purchasing a Home after Foreclosure
If you are hoping to buy a home following a foreclosure, be patient.
The key is to rebuild your credit. During the next 24 months, attempt to
open new credit accounts, and maintain regular payments. Pay creditors
on time and avoid missed payments.
Next, shop smartly for a new mortgage. Prior to accepting a mortgage
offer, contact several lenders for quotes. If using the internet, you may
obtain instant quotes from several lenders in minutes.
View our recommended lenders for
Bad Credit Mortgage Loans.
