The ‘Way Home’ Following Foreclosure

Losing a home to foreclosure is a truly disheartening experience for too many homeowners these days. It’s an unfortunate outcome for many otherwise model citizens: typical hard-working adults who fall victim to circumstances which are sometimes simply beyond their ability to control. It can happen for any number of unforeseen reasons: illness, divorce, or simply the repercussions of the larger economic forces that cause a job loss or closure of a business enterprise.

Whatever the cause, when a foreclosure happens the immediate problem is "‘Where do I live now?" quickly followed by "How long will it be before I can buy a home?"

Our Apollo Beach office is no stranger to this question; but the good news is that a foreclosure is an obstacle that can be overcome. The realistic news is that it will usually take time – and although ‘eventually’ is not a word that fosters optimism, it is one that describes "the way home".

To buy a home after a recent foreclosure you have three possible routes. The first is the shortest: it is appropriate only to those whose financial future is already strong, and who are willing to pay a high price. The risk that loan officers must attach to anyone with a foreclosure in their recent past is substantial, and to compensate for it, expect any proposed offer to combine a smaller mortgage (made possible by a more substantial down payment: possibly 20% or more) with a high interest rate.

For the vast majority of people, the second way to buy a home is the most common. It’s the one that involves substantial repair to your financial profile. The guidelines that mortgage officers follow are understandable: they read your financial history in order to predict the future: will you repay a new 30-year mortgage? Will your payments be late? To make sure the right answers are apparent, do the obvious: reestablish the kind of credit story that makes the foreclosure look like a one-of-a-kind bump on an otherwise smooth road.

Realistically, you will need to spend at least a couple of years saving money and paying bills. Two years at the same job with stable income is usually the minimum requirement for any lender. It is also of key importance that you make absolutely sure you do not miss payments of any kind. Your FICO score will have suffered enough after a foreclosure (often 100 – 150 points). To demonstrate that you are fully capable of handling the substantial debt of a home loan, you need to spend a convincing amount of time making consistent on-time payments for all your bills. In the meantime, you should expect to rent a home. The regular payment of that rent will be a key part of the story you will be demonstrating.

It is in this area that there exists a third possible pathway: the lease option. It is an additional wrinkle that can shave time from the gap between a foreclosure and buying a home. A lease-option can be a handy way to get one foot back in the home ownership arena while taking the time you need to rebuild your financial history. With a lease-option, you sign a contract with a seller to buy a home at an agreed-upon price within an specified period. This can allow time to reestablish your financial footing as you get back to work, save some money, and pay bills. Since this is a binding legal contract, it is wise to seek the help of an experienced real estate agent or attorney. Contact me if you would like to discuss this or any of your own questions about how to buy a Apollo Beach home in the future.