If you've been through a foreclosure, you may wonder if there is hope for you to become a homeowner again. The answer is yes, but it will take a while. First you'll need to examine what caused you to fall behind on your mortgage and take steps to fix the problem. You have to look at what were the reasons you didn't make the payment. A foreclosure is a major hit to your credit history and stays on your credit report for seven years.
So, after a foreclosure, your priority has to be rebuilding your credit. You'll have some time to do so, because mortgage giants Fannie Mae and Freddie Mac impose strict rules on how long it will take before you're eligible for another mortgage.
Here's what you need to do to rebuild your credit to qualify again for a mortgage:
Pay your bills on time: The FICO score, the dominant credit score used by lenders, gives the greatest weight to payment history, so make sure you consistently pay your bills on time. Stability is the key. You have to demonstrate that you are now capable of owning a home and paying the bills, and have recovered from whatever circumstance caused the original foreclosure.
Review your credit report: You're entitled to a free credit report once every 12 months from each of the three national credit bureaus-Experian, TransUnion and Equifax. You should get a copy and check it for any inaccuracies.
*To get your free credit report, go to http://www.annualcreditreport.com. If you find errors, dispute them. If you discover old debts, it will weigh in your favor to satisfy them. Paid late looks better than not paid at all. Make sure that debts older than seven years have rotated off your report, as these could be dragging your score down unnecessarily.
Check your mortgage: You want to be sure that you don't still owe anything on your old mortgage. Sometimes proceeds from a foreclosure sale aren't enough to cover what's owed on the mortgage, which would leave you owing the difference. Make sure there is a zero balance reflected, and if you are responsible for a shortfall, make arrangements to repay the remaining balance. Many lenders are willing to settle that "deficiency judgment" for less than what's owed because it's better than getting no money at all.
Apply for credit: In particular, apply for different varieties of credit. Credit scoring models value having different types of credit. Having some revolving accounts, typically credit cards, and some installment fixed-payment loans, such as a car payment, can improve your score. But don't apply for too much credit at once because this can appear as though you're desperate for credit and perhaps make lenders less inclined to extend credit to you.
Don't fall prey: Watch out for credit repair companies that promise to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job-after paying a fee for the service. The truth is, that no one can remove accurate, negative information from your credit report, according to the Federal Trade Commission. It's illegal. Only the passage of time can assure that negative, but accurate, information on your credit report will be removed.
When it comes to repairing your credit, there are no quick fixes, the experts say. What lenders want to see is responsible financial behavior over time.
And thank you for making me Your Orange County Real Estate Connection.
Michael Caruso, Broker ABR ABRM CLHMS CRB CRS GREEN GRI
Past President, Orange County Association of Realtors (949) 753-7900