Buying A Home And Renting After Foreclosure And Bankruptcy
By Nick Adama
Foreclosure victims are almost universally worried about their ability to qualify for a new mortgage loan after filing bankruptcy or facing foreclosure. Because of the negative credit effects of both events, it may seem like it will be impossible to purchase a new home or refinance any time within in the next seven years. However, this is no reason to give up hope. In most cases, with a bit of hard work and dedication, homeowners can buy a home again after bankruptcy or foreclosure; it just will not be easy.
If the bankruptcy is used during the foreclosure as just a temporary solution, and homeowners are unsure of their ability to sell the house, it might be better just to take the foreclosure and avoid filing a Chapter 13. In either case, it is best for the homeowners to have an appraisal on the property done as soon as possible and find out if they owe more on the house than it is currently worth. It they are underwater, then a bankruptcy that they can not afford will not be an effective, long-term solution to the problem.
When bankruptcy to stop foreclosure is used to get more time to work on a longer-term resolution, it is important that homeowners know their chances of selling or refinancing. If the house is worth less than what is owed to the lender, finding any option to end the foreclosure for good will be much more difficult. Agreeing to an unmanageable bankruptcy payment plan may be acceptable for the very short term, but homeowners need a quick backup plan in order to avoid ending up with both a foreclosure and bankruptcy on their credit.
There is no mistaking the danger of this event: having a bankruptcy and a foreclosure in quick succession will look very bad to any potential future creditors. Even with just one of the two, the foreclosure victims will have to spend a lot of time working on cleaning up their credit report, getting old negative information removed, and establishing a positive history after foreclosure. With both showing up in a short period of time, getting the credit and financial situation back in shape will require even more dedication. This is not to say it can not be done, and there are numerous resources online to help consumers with credit problems, but it will take concentrated efforts by the homeowners.
Thankfully, nearly all foreclosure victims can avoid at least one extra judgment from showing up against them. The bank will probably not come after the former homeowners for a deficiency judgment after foreclosure, if that is something they are worried about (and most homeowners are worried about having assets repossessed or wages garnished ). But from the lender's perspective, they are not collecting anything currently from the mortgage or from the foreclosure, so there is no reason for them to spend the time and money to sue the homeowners again. In fact, the former owners probably do not even have the financial ability to pay tens of thousands of dollars in judgments after losing their homes, so why would the bank waste its time and money after taking a loss on the defaulted loan? In fact, it will not waste its time, instead focusing on selling the house on the open market.
It might take a few years to qualify for a mortgage after the foreclosure is done, but it can be done. Of course, former foreclosure victims should definitely not expect to get a 100% financed house. These loans simply do not exist any longer, even for consumers with excellent credit. Furthermore, they will need to show the lender that there is money for a significant down payment, plus a savings account to be used in case of emergency, plus stable income and employment. Honestly, though, without those three things in order anyway, no one should consider buying a house in the first place. A down payment, emergency fund, and stable income are absolutely necessary if a family decides to purchase a home, to make sure the possibility of losing that home to foreclosure is extremely remote.
The best idea for homeowners after filing bankruptcy or losing their home is to use the time after foreclosure to start repairing and improving their financial situation. In effect, that is the best they can do for now, and within a couple of years, there is a real possibility they can apply for a new mortgage and be approved, as long as they have saved up, shown wise use of credit, and maintained a stable financial condition since the end of the foreclosure process.
