After foreclosure: 3 steps for getting home buying approval

Purchasing a new home after a foreclosure is tricky, but not impossible.

Foreclosures arise when a homeowner is unable or unwilling to repay their mortgage loan. After several unsuccessful attempts to collect payments, mortgage lenders reclaim the property. A foreclosure reduces your credit rating and will make it difficult to obtain a future mortgage. Nonetheless, there are ways to improve your odds of qualifying for a new mortgage loan.

Improve your credit history
Increasing your credit rating is essential when trying to rebuild credit and purchase a home. Some lenders are reluctant to offer money to high risk applicants. Moreover, sub prime lenders who specialize in advancing money to individuals with credit blemishes charge higher interest rates and fees.

If you are hoping to obtain a mortgage with reasonable rates and terms, you must prove that you are credit worthy. Lenders review credit reports before approving a loan. Individuals with several missed or late payments are not given prime rates. To increase your score, strive to pay all bills before the due date and eliminate unnecessary debt.

Some mortgage lenders recommend that you wait at least 24 months before purchasing a new home. This allows ample time for you to rebuild credit and establish a good payment history with creditors.

Have money for a down payment
Purchasing a new home less than 24 months following a foreclosure is possible. On average, these mortgage loans do not include 100 percent financing. Thus, applicants will need a 5 percent to 20 percent down payment.

Having a down payment is also beneficial because you are able to negotiate better rates and terms. If you are unable to save money for a down payment, consider waiting 24 months before purchasing. Increasing your credit score will make you a good candidate for a mortgage with zero down and 100 percent financing.

Shop around for the best quote
Compare rates and terms from at least three different lenders. You may contact each lender separately, or complete an online request form from an online broker. Using a broker is quick and convenient. Brokers have relationships with various lenders and are able to locate the best offers for your circumstance.

Within 24 hours of completing a request form, you will receive multiple quotes from numerous lenders. Quotes will include rates, fees and terms. After thoroughly reviewing and comparing quotes, choose the lender that offers the best financing package, and complete the application process.

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