Several challenges await you if you've been foreclosed on and are in pursuit of a new residence. With the recent housing slide, this is becoming a more common occurrence. Even the process of renting may be tough for you.
Two immediate issues arise for those who wish to become renters following foreclosure:
- Deposit: You may not have the required cash to fulfill the general requirements of a deposit that consists of first and last month's rent coupled with a security deposit.
- Credit history: Landlords may be willing to accept a prospective tenant with a lower credit score, but this often leads to landlords seeking more security for their risk. In turn, you may be asked for more money down at the start. There are programs, such as the "cash for key" program, in place that can supply homeowners who are being foreclosed on with a small jolt of cash upon departure.
The black mark on your credit report following foreclosure will remain for seven years, though it declines over time. Although your credit score will be severely damaged, there are some ways to repair your credit score.
Additionally, there are measures you can take to to help soothe your prospective landlord's concerns over your financial past.
- Put together a rental resume explaining why the foreclosure occurred or other credit issues. A landlord may show leniency if the cause of your foreclosure was a job layoff or an unforeseen, uninsured health condition.
- Explain your reasons for wanting to rent and your current job status. You may find that illustrating a solid job history is also beneficial. The landlord needs to be sold on your qualifications, much like a job interview.
Buying another home
Is this possible? Yes, but it'll take some work on your part. Requirements and regulations are in place to ensure that homeowners who've experienced foreclosure cannot quickly re-enter the homeowning market. Fannie Mae dictates that five years must elapse following foreclosure before you can purchase another home. Here are some other rules that apply after five years and last until the seventh year:
- Cash-out refinances are barred.
- Purchase of a second home or investment property is not allowed.
- A family may purchase a principal residence with a 10 percent minimum down payment and a credit score of at least 680.
- Limited cash-out refinances are permitted for all occupancy types according to the requirements in effect at that time.
- A federally insured FHA loan may be available in as few as three years to a family that shows good bill-paying habits following foreclosure.
A new lender will check how your credit has been used since foreclosure. Banks are not likely to lend more than 75-80 percent of home purchase price to anyone having gone through foreclosure in the past two years. As a result, developing a savings plan and cash reserves are a necessity if you want to move forward for future home buying.
Depending on your situation, you may find consulting an attorney or national foreclosure mitigation counseling helpful for sorting your circumstances out.