Losing a home to foreclosure can be one of the most financially and emotionally painful experiences a household goes through. Many people grow attached to their homes, and some lose hope that they will qualify for another mortgage following a hit to their credit and financial profile. However, those that work to get their credit in line, improve their money management capabilities and change their saving and spending mindsets may be able to qualify for a new mortgage in a reasonable amount of time.
Following a foreclosure, the first recommended action households should take is enrolling in housing counseling. Working a professional housing or credit counselor can educate consumers on the habits that led to the foreclosure and the steps they need to take to overcome their current situation.
Individuals can begin by examining their existing budgeting habits and spending and saving behaviors. A foreclosure may have come about due to irresponsible money management, or factors beyond a consumers’ control, such as unexpected medical debt. Determining which elements contributed to housing strain, and seeking out solutions to overcome them in the present is critical.
In addition, individuals should work to ensure their other accounts are in good standing, or on their way to improvement. A foreclosure can cause significant damage to a person’s credit, and this damage may be exacerbated by mismanaging other credit-related accounts. Therefore, individuals should greatly focus on paying their bills on time, keeping credit card balances low and avoiding applications for new credit. These steps can help individuals begin the task of repairing their credit, a move that will be necessary to qualify for another mortgage in the future.
Start putting money away
Paying off debt and keeping accounts maintained are important following a foreclosure, but so is saving money to re-enter the mortgage market. The down payment on a home can be imposing even for families in a strong credit position, so putting aside a large percentage of income each pay period is imperative to improving a consumers' financial position and home buying prospects. Ideally, buyers should aim for a 20 percent down payment on a home, which allows them to avoid paying private mortgage insurance.
In addition, a hefty down payment will reduce the principal amount buyers may on their mortgage and may prompt lenders to assign more favorable interest rates.