When the housing bubble burst in 2007, Americans were hit hard. According to RealtyTrac, 4.8 million borrowers lost their homes to foreclosure and 2.2 million gave up their homes in short sales. The recovery has been slow, but finally the housing market is re-emerging and showing signs of strength. Many former homeowners have learned difficult lessons and gained a new perspective on saving and making wise investments.
Following these tips will help set prospective buyers who have previously faced a foreclosure or short sale on the right path to homeownership:
• Work with a reputable lender. Make sure that person has the experience and knowledge to help you make an informed, affordable lending decision. They can also explain the time limits that affect buyers who have previously faced a foreclosure or short sale. There is generally a set amount of time that needs to pass before you are eligible to be considered again for a mortgage loan.
• Make an honest assessment of your credit situation. Having a foreclosure or short sale on your financial record will affect what options you may have for loan approval. Be an informed borrower. Access your credit report from all three credit agencies by visiting www.annualcreditreport.com. It’s free!
• Save up for a down payment. Homebuyers re-entering the housing market after a foreclosure or short sale typically need to have a 20% down payment before purchasing a home. Keep in mind the additional expenses you may have to cover, such as closing costs. Properly handling financial responsibilities of homeownership beyond the monthly mortgage payment like taxes, homeowner’s insurance, utilities and other household expenses will be important in earning your loan approval.
• Get preapproved. It’s a good idea to work with a lender who offers a pre-approval program. The preapproval process helps borrowers determine their budget, first before getting into their home search.