Buying A Home After Foreclosure - What To Expect

by Carrie Reeder

Even though buying a home after a recent foreclosure is
possible, homebuyer should not apply for a mortgage blindly.
Because of your current credit standing, many lenders are ready
to take advantage of you. Your options are limited. Nonetheless,
this does not mean you have to accept a terrible mortgage loan.

Why Does a Foreclosure Occur?

Homes are foreclosed when a homeowner is unable to repay the
mortgage. On average, mortgage payments have to be three months
late before a lender begins the pre-foreclosure process. If the
homeowner is able to acquire funds, the lender will stop
foreclosure.

Many factors contribute to a homeowner's inability to repay a
mortgage loan. For starters, living beyond one's means will
make it harder to maintain regular monthly payments. Sadly,
many people fall in love with a home they cannot afford.

Furthermore, some homeowners do not take into consideration
utilities and other expenses that come with owning a larger
home. Acquiring excessive credit card debt may also result in
less disposable income.

The Disadvantages of Buying a Home after Foreclosure

For the most part, many lenders will not approve a mortgage
loan immediately following a bankruptcy. In their estimation,
you are a risky applicant. If you were unable to make regular
payments three months prior, the odds of a future loan
defaulting are high.

Naturally, circumstances do change for the better. For example,
if loss of employment or illness contributed to a foreclosure,
you may be in a better position to afford a mortgage six months
after a foreclosure. Still, there are disadvantages to obtaining
a home so soon.

Mortgage interest rates following a foreclosure are
outrageously high. Because most traditional mortgage companies
will not approve your loan, you may be subjected to interest
rates 3 or 4 percentage points above current rates. This will
increase mortgage payments by a few hundred dollars.

Best Approach for Purchasing a Home after Foreclosure

If you are hoping to buy a home following a foreclosure, be
patient. The key is to rebuild your credit. During the next 24
months, attempt to open new credit accounts, and maintain
regular payments. Pay creditors on time and avoid missed
payments.

Next, shop smartly for a new mortgage. Prior to accepting a
mortgage offer, contact several lenders for quotes. If using
the internet, you may obtain instant quotes from several
lenders in minutes.