Foreclosures create a major blemish on your credit report. You may pay a higher percentage rate for auto loans, consumer loans, and credit cards. Moreover, some lenders are unenthusiastic to grant you a new mortgage loan. Despite setbacks, obtaining a mortgage loan after a foreclosure is possible. Here are a few guidelines to help improve your odds of obtaining a mortgage after a foreclosure.
What is a Foreclosure?
In a nutshell, foreclosures occur when banks or mortgage lenders repossess a property. Mortgage loans are protected by the home. If you refuse to submit payments for the home, the lending institution has the right to take control of your home. For the most part, mortgage lenders will not foreclose immediately. Foreclosures generally occur after your mortgage loan is three months passed due.
Re-establish Good Credit History
While a foreclosure is disheartening, it is imperative that you begin rebuilding your credit. Because a foreclosure will remain on your credit report for at least seven years, creditors who review your report are knowledgeable of past or recent foreclosures. In this case, creditors may charge higher interest rates.
On the other hand, if you opened new credit accounts, and maintained a good payment history with current creditors, this will show on your credit report. Moreover, your credit score will likely increase, which will boosts mortgage lenders faith in your dedication to repay the loan. Establishing a good credit history is effortless. Simply pay bills on time, and avoid missed payments. Lenders suggest that you wait at least two years before applying for a new home loan.
Purchase New Home with a Down Payment
Although there are several home loan programs that do not require a down payment, if you have a past or recent foreclosure, a down payment may help you obtain a reasonable rate. The typical down payment for a home is about 5% - 10%. Because a foreclosure justifies an interest rate increase, a larger down payment will give you the opportunity to negotiate a lower rate, and it will lower your monthly payment.
Get Quotes from Several Lenders
When applying for a home loan after a foreclosure, you should shop around and acquire quotes from several lenders. Contacting a mortgage loan brokers is beneficial. Brokers have dealings with a range of lenders, including sub prime lenders. Sub prime lenders are ready to grant mortgages to individuals with bankruptcies, foreclosures, and bad credit. Once you submit an application, you will receive numerous offers from lenders looking for your business.
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Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.