Recovering from a foreclosure can take a really long time, usually seven years. Foreclosures have a negative effect on your credit scores and a huge impact on your overall financial health. Many people who have gone through foreclosure wonder if they will ever be able to buy a house again. However, while your credit will take a big hit after foreclosure, you may be able to get another mortgage after some diligent work and time passes.
Here are some tips to improve your chances of having a better credit score in a shorter period of time and increase your chances of getting another mortgage.
1. Rebuild your credit
It's never too late to set off on the road to recovery, no matter how big the impact of the foreclosure is on your credit score. Begin with working out a savings and expense plan. Take a close look at your current financial situation. Assess what resources you have for repaying the debt, how long will it take to regain control of your finances and how are you going to manage your current expenses. Small things can make a big difference to rebuilding your credit.
2. Pay off your debt
If you can pay off your credit card debt entirely, the better your chances are of getting back on your feet. But if you don't have that much resources, pay off your debt a little at a time until you're totally debt-free. Your credit card spending accounts for 30% of your credit score and if you have no debt, then that means a higher score for you. Aside from your credit card, start paying off your other debts like car loans, student loans, etc.
3. Say no to more debts
It might be tempting to get a car loan or other financing right now, but you should hold off getting more debts because this could hurt your credit score more. Aside from your credit history, lenders also look at your debt to income ratio in determining whether you qualify for a mortgage. The bigger your debt, the more difficult it is to get approved for a home loan.
4. Consult a loan expert
One mistake borrowers often make is consulting a loan expert only after they try and fail to get the mortgage, one way or the other. The right approach is to consult the loan pro right after foreclosure and get an expert roadmap to the right mortgage. Also, consulting with a professional can make things less hazier and more hopeful.
5. Avoid other black marks
Once you're back on your feet, make sure to stay on the right track and avoid habits that would worsen your situation like not paying bills on time and missing payments. If you do, then you're back to square one.
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