Yes, there is Life after Foreclosure!
Here is what you need to do in order to buy a home after short sale or foreclosure:
Debbie Reynolds re-blogged one of my blogs Fannie Mae Waiting Periods For Foreclosures And Short Sales last Thursday which reminded me I had not followed up with another blog on Fixing Credit After A Foreclosure Or Short Sale during the waiting period. In most cases going through a Foreclosure or Short Sale is a devastating experience. A Foreclosure or Short Sale marks the end of a very bad experience in a homeowner's life, and the beginning of the recovery from that experience. Once the Foreclosure or Short Sale is completed shortly thereafter most homeowners begin to think of correcting their situation, and being able to position themselves to one day become homeowners again. One of the first steps in beginning the recovery is to Fixing their Credit.
I wish there was a magical quick way to repair credit after a Foreclosure, or Short Sale but there isn't any. However, I can make suggestions on the quickest way to accomplish it within the waiting period the homeowner needs to wait before being able to qualify for another mortgage after a Foreclosure, or Short Sale.
The Loan Program which has the shortest waiting period after a Foreclosure, or Short Sale is FHA, and the waiting periods are:
- 3 Years after a Foreclosure
- 3 Years after a Short Sale, if the Homeowner went late before or during the Short Sales process. But If the Homeowner did not go late during that period they may be able to purchase right away if their credit scores are high enough to qualify for a mortgage.
NOTE: The waiting periods for a Conventional Mortgage have recently been reduced to 4 years for a Short Sale. So the waiting period is now much closer to the FHA waiting period. However, the Foreclosure waiting period remained the same and can be as long as 7 years.
In each of the above cases, the Homeowner's Credit Scores are going to take a hit. How much of a hit will depend on their payment history leading up to the Foreclosure, or Short Sale.
Once the Foreclosure, or Short Sale has been completed, it is imperative the homeowner not have ANY late payments on anything from that time forward. ANY late payment between the time the homeowner completes a Foreclosure, or Short Sale will increase the above waiting periods. How much longer a late payment will increase the waiting period will depend on the number of late payments, and the Homeowner's credit score at the end of the waiting period.
The second most important thing for the homeowner to do during the waiting period, is to re-establish credit by doing the following:
- Pay down all other debts as much as possible which report on their credit report without adding any new ones such as:
- Pay down credit card balances to no more than 1/3 of the credit card limit, and never, ever go over 1/3 of the card limit.
- Car Loans
- Student Loans
- Other Installment Loans
- However, if the homeowner filed for Bankruptcy they most likely included all of the revolving debt listed above in the Bankruptcy. So besides making sure they are on time with all their remaining debts, they have to start to re-apply for new credit cards, or some sort of installment loan. Once the homeowner has been able to obtain a credit card, or installment loan, their credit scores will start to increase if payments are made on time. As their credit increases the easier it will be to obtain more credit. It is important to make sure credit card balances are kept below 1/3 of the credit limit on the new credit cards, and not get back into the financial situation which caused them to file for Bankruptcy in the first place. The objective is to obtain credit, but use it sparingly.
If the homeowner does what I have suggested above their credit should be at a level where they will be able to purchase a home again at the end of the Foreclosure or Short Sale waiting period. I have worked with Borrowers who had a Foreclosure, or Short Sale who were able to get their Credit Scores back up over 700 by doing what I have suggested above. So while there is no quick way to Fixing Credit After A Foreclosure Or Short Sale, the quickest way to do it is to use common sense, pay everything on time, pay down balances as soon as possible.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org