The bad economy and the crash in the housing market has been a significant reason why millions of American families lost their home to either short sale or foreclosure. What was once considered to be a negative stigma that society looked down upon has now become so common that everyone knows someone who has gone through at least one of these events.
Many started to lose their homes back in 2007 with many more following through 2010 and beyond. Even today, there are many homes in jeopardy of being lost. What many people don’t realize is that it is possible to buy another home, sooner rather than later.
The common belief has always been that it would take seven to ten years for the credit to clean itself up and put the borrower back in a position where a bank would be willing to loan them money for another home. This has all changed.
While it is technically possible for a borrower to qualify for a mortgage as soon as 12 months after either a bankruptcy, short sale or foreclosure, most borrowers will not qualify under the guidelines established by the FHA in their “Back to Work” program; especially once individual lenders complicate the process by imposing their own layers of qualifications.
These overlays make it near impossible for most borrowers to obtain a home loan in anything less than two years after their bankruptcy, short sale of foreclosure.
The key to obtaining a new mortgage is to start rebuilding credit as soon as possible. Many smart people going through bankruptcy for example will “reconfirm” several of their debts – never missing a payment. Usually a reconfirmed debt will be for an auto loan, a student loan or even the current mortgage. Once the bankrupt has been discharged, it is imperative that not one single payment is ever late again. By maintaining an “on-time” history with your creditors, the mortgage underwriters will look more favorably upon your application – any late payments and you are seriously risking a discretionary denial by the underwriter.
Credit accounts are rated by the credit bureaus by several aspects which not only include the payment history but the length of time the account has been open as well as the available credit. For example, an unsecured credit card with a $2,500 limit that has been open for five years may produce more points on the consumers FICO score than an account with a $5,000 limit that has only been open less than a year. This will be especially true if the larger account reaches closer to the borrowing limit that the smaller one that never goes over half of the available credit limit.
The absolute minimum credit a bankrupt, foreclosed or short sale borrower will require is three accounts for 12 months without having any negative activity at all during this time frame. In order to reestablish credit quickly, many borrowers will apply for three different secure credit cards the day after their bankruptcy is discharged or their foreclosure/short sale is finalized and recorded with the County Recorder’s Office.
Borrowers should avoid at all costs applying for an unsecured credit card or other consumer debt until they have re-established their credit profile. Chances are greatly stacked against the borrower because inquiries will only bring down their credit score.
There is much to this topic; certainly this short article is not replacing your attorney when it comes to giving legal advice. Recognizing that each scenario is unique, it is highly recommended that you find a mortgage professional who can provide you with sound advice as to what the underwriters are currently looking for when it comes to approving home loan applications.
If you need a credit restoration service, there are many good ones out there and a good mortgage professional should have no problems referring you to a legitimate service that can assist with your credit restoration.
Figuring out what is best for you is probably not something you should undertake on your own. Eventually, you’ll want a REALTOR® to help you find and negotiate the best price and terms for the home you want to buy. Before this, you’ll need a good lender to help you find the best loan that matches your situation. As mentioned, perhaps you’ll need a credit restoration service or an attorney. Whatever you need, you need to start with a trusted professional that can network with their team, finding professionals with a proven track record of working together, focusing on the goal of helping boomerang buyers back into another home.
Call us today and get the information you need to make the right decision. The information is free, call now! (951) 296-8887.
Questions regarding available inventory and/or other real estate matters please contact me, [email protected] Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Traveling State Director, California Association of Realtors®