Foreclosure can be a daunting thing to go through for anyone. There is the confusing process, then Minnesota foreclosure state laws, and the simple fact that you are losing your home causes many people to lose hope of ever owning a home again.
Some families get so frustrated they simply just give up and turn to just renting feeling that there is absolutely no hope for future home ownership. This is simply not true. While having a foreclosure on your credit will be certainly be a challenge to getting financing in the future it is in no way the end of home ownership.
There are many keys to successÂ to get back toÂ owning a home after foreclosure. It is important to remember that you are not alone and learn from the experience. The next most important key for your success is to sit down and come up with a concrete plan that gives you enough time to reestablish your credit. This usually involves assessing your current financial and credit situation.Â Once you have done this you shouldÂ establish a realistic budget, get involved in credit repair or maintenance program, and commitÂ on being disciplined to follow your plan.
Your next decision is one of your most important decisions you will make. What will be your living situationÂ in theÂ next couple of years. You really have three core options:
You could find a place to just rent and stay focused on building your credit and cash resources in the quickest time possible. Typically under a straight rent scenario you will need 24 â€“ 36 months from your foreclosure date to think about getting financing. More importantly given the current market conditions when you are at the end of this rent period of 24 â€“ 36 months you still will have to come up with a 10% down payment. Also you should add to this that you will have to move once again. This is typically one of the best reasons why doing a straight rent might not be the best option for you.
Rent to Own
A rent to own or lease option is where you rent a home for a period of time and you have the option to purchase the property within your option period. Most likely your option price is fixed and you are getting a monthly rent credit that gets credited towards the purchase price. Typically on a rent to own you are required to come up with an upfront payment called an option payment. This option payment is credited towards the purchase price and is typically anywhere from 1 â€“ 5% of the purchase price depending on the particular home.
The benefit of doing a rent to own home after foreclosure is it gives you the ability to gain equity in the home by getting a monthly rent credit and you are also building a payment history that a future lender or bank can look to as a credit reference. Keep in mind though that if for whatever reason you donâ€™t exercise your option to purchase the property in 99% of all lease options you most likely will lose your option payment
Contract for Deed
A contract for deed (aka â€œinstallment land contract, CFD, CD, C4Dâ€) is basically a agreement to sell and buy a home wherein the seller will hold the title until the time when the contractâ€™s provisions have been filled, usually upon full payment of the property. In this case, the buyer may already occupy the property and make the payments as stipulated. Upon completion of payment the seller will pass the title by recording the deed.
In a contract for deed typically you get more tax benefits to the property than as a straight rental or rent to own. Most contract for deeds require a minimum down payment of 5% of the purchase price. Payments are usually based on the remaining balance of the contract.
The benefit of a contract for deed is it is usually simpler to obtain your own financing to cash out the contract. Typically when you finance to cash out a CD the lender will look at the property as if you already own it and the financing works more like a refinance.
So which one of these is the better situation for you? Of course this depends on your individual situation but generally a contract for deed is more desirable than a rent to own, and a rent to own is more desirable that a straight rent. Keep in mind that above all else, learning from your experience, having a good plan and the discipline to stick to your plan will be the key to your success of future home ownership after foreclosure.