Millions of Americans lost their homes to foreclosures, many for reasons beyond their control. With the job market continuing to suffer and consumers weighed down by medical or credit card debt, making mortgage payments became overwhelming for a large segment of Americans. However, many consumers whose homes fell into foreclosure are emerging as new homeowners only a few short years after losing their properties, according to MSNBC.
Current mortgage rates and home prices are at unprecedented lows, making homeownership a more affordable option for consumers. However, individuals who are thinking about taking advantage of the favorable real estate and market conditions after their foreclosure should consider a few factors before submitting an application.
First, it's important to enroll in housing counseling. These services can help home seekers analyze their current finances following their period of hardship to determine how much of a mortgage they can feasibly afford. Most experts agree that consumers should not take on a mortgage whose payments exceed 28 percent of their take-home pay, and counselors may also provide several tools and resources, such as home loan calculators, to help individuals set spending parameters.
Second, securing a mortgage following a foreclosure is far from impossible, but it can be tricky. Lenders want to be assured that homeowners have the income and financial discipline to make regular payments. For this reason, individuals will need to work hard at cleaning up their credit. Paying all bills on time is a necessity as this makes up the largest percentage of a consumer's credit score. In addition, it's crucial to keep debt low. The amount of revolving debt an individual has incurred in relation to their available credit limits makes up the second largest percentage of their scores. For this reason, individuals should focus on paying down credit card balances before applying for a mortgage loan.
Lastly, mortgage applicants who can make a sizable down payment may have a better chance of getting approved for a loan. Working with a professional, such as a credit counselor or financial advisor, can help consumers develop a budget that allows them to build their savings quickly to make a sizable payment on a new home.