The prospect of buying a home following a foreclosure can be both exciting and frightening. Understanding what to expect and how to prepare can help to eliminate many of your concerns and ensure the process is as smooth as possible.
Begin by carefully reviewing your credit report. Remember that you are entitled to receive one free credit report from each of the three major crediting reporting bureaus once a year. If you see anything inaccurate reported, do not hesitate to dispute that item. Review your credit scores and determine where they stand in comparison to recommended lending guidelines. If your scores are still low, now is a good time to begin working on raising your scores by paying off debt and ensuring payments are made in a timely manner.
Bear in mind that while your credit report is an important part of being approved for a new mortgage, debt ratios are important as well. In particular, your lender will review your debt-to-income ratio to make sure you can handle the addition of a mortgage payment. The best way to lower this ratio is to avoid taking on new debt and working toward paying down all existing loans and credit cards.
Many people who were victims of the housing crisis found they had no choice but to rent after losing their homes to foreclosure. Ensuring that you have a solid trail showing that you paid your rent in a timely manner can go a long way toward helping you to qualify for a new mortgage when the time is right. While receipts are good, cancelled checks with a memo are even better.
Finally, make sure you file your taxes and keep excellent records. If you are self-employed, this will be even more important when trying to obtain a mortgage following foreclosure.