The post-foreclosure requirements have recently changed to qualify for a new mortgage. However, there is life after a foreclosure! FHA loans only require 3 years to have passed unless an exception is granted based on extreme circumstances which vary on a case by case basis. Fannie Mae/Freddie Mac now requires 5 years to have passed with restrictions up to 7 years.
Here is what you can do to be in the best shape to buy another home after a foreclosure.
•· The biggest problem I see is that creditors do not report the data correctly to the credit bureaus. Very often, a creditor will stop reporting any data, whereas, they should be closing the account out, updating the balance to $0 and updating the status. Consumers need to check their credit report regularly and stay on top of creditors to report their data correctly. Credit scores can rise quickly if the creditors are reporting the information correctly! Start looking at your credit report as soon as six months following a foreclosure, and I would recommend checking it every six months.
•· Secondly, re-establishing credit and paying it on time is key. In many cases, you may need to get a pre-paid credit card which allows a credit card company to grow comfortable with you as a borrower. Regardless of how small the minimum payment is, it must be paid on time, this shows an underwriter that you have learned from your mistakes and that you are on a good path. If you are not able to get a credit card, alternative credit can be used such as a cell phone bill, car insurance, utility bill, etc. Make sure these are paid on time as they may be key to obtaining a new mortgage.
•· Lastly, keeping excellent records cannot be stressed enough! Rent should be paid via check or automatic draft. Making a cash payment is like shooting yourself in the foot-even money orders are not the ideal. The clearer the paper trail the better. Also keep all documentation and correspondence from any creditors, especially the lender that foreclosed on your property.
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