Getting a mortgage after foreclosure is difficult but not impossible
You may be thinking that it is almost impossible to obtain a new mortgage loan but it may not always be the case in actual practice. It is true that your credit score will receive a thrashing if you have been in foreclosure, but it will not completely hamper your prospects of purchasing a house or qualifying for a new mortgage after foreclosure. However, prior to obtaining a new loan, you will have to rectify the damages and mend your finances. You may even be allowed to obtain home mortgage loans just one year after the foreclosure but high rates of interest will be charged from you. However, if you want to reduce the burden of interest payments, you can wait 2 to 4 years so as to obtain a new loan with comparatively favorable terms and conditions. Anyways, getting a mortgage after foreclosure depends upon several factors such as your outstanding debts, your income and other items on your credit report. Here we discuss few tips which will help you to obtain mortgage loan after foreclosure.
Improve your credit
It is very difficult to obtain new mortgage loan after foreclosure but you have to pay higher rate of interest. If you have already gone into foreclosure, you may have to have 8.30% rate of interest for a 30-year fixed rate mortgage loan. Again, if you have good credit report and have not gone into foreclosure in recent times, you may obtain the same mortgage loan at 6.30% rate of interest. So, it is very much important that you should rebuild your credit score before you apply for mortgage loan again. In order to rebuild your credit score, first of all, you need to get the copies of your credit report from the three credit bureaus. As per the law, you can obtain credit reports at free of cost. Once you have obtained the credit reports, go through those reports thoroughly and find out for which accounts you have defaulted or made payments late. And, from now onwards, make sure that you make payments on bills, credit cards etc. on time. This will help you rebuild your credit score.
Know important ratios
If you are looking for a mortgage loan after foreclosure, you should be well aware of certain ratios. These ratios are used by the mortgage lenders to judge your affordability. As a thumb rule, maximum monthly mortgage payment amount is 33% of your income. Again, your maximum monthly mortgage payment plus your other monthly debt payments should be below 41% of your monthly income. Once you know these ratios, you can have an idea whether or not you will be eligible to obtain a mortgage after foreclosure.
Track the real estate market
Keep track of the housing market in your area. You should be very much watchful while buying in a falling market. In a falling market, if you default in making payments, you may not be able to recover the loan amount as the home prices decline steadily.
By following the above mentioned tips, you will be able to increase your chances of obtaining a mortgage loan after foreclosure.
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