While a foreclosure can be a traumatic experience, the housing upheavals that occurred at the end of the first decade of the 21st century made it no longer a rare one. Millions of families have experienced foreclosure, and millions are on the road to recovery. Life goes on, and a return to normalcy is possible.
Bouncing back from a foreclosure starts with making sure that the foreclosure process is finished. Work with your lender or an attorney to transfer the property's title into the lender's name so that you are no longer responsible for it. Also determine whether or not you still have liability for the loan under what is called a deficiency judgment. Depending on how your foreclosure is structured, your lender may waive the balance, or your state might not allow such a judgment at all. If, however, you are required to pay any shortfall on your loan, it can haunt you for years to come. In that instance, talk to a housing counselor or attorney to understand your options.
With a foreclosure on your credit report, you might have difficulty finding a landlord who will work with you. Or your new landlord might require a higher security deposit. Getting a co-signer on your lease can be helpful. Also, consider renting from small-scale, private landlords instead of large management companies, because private landlords might be more likely to overlook credit issues if they get a good feeling about you personally.
Your foreclosure will stay on your credit for seven years. However, just because it's there doesn't mean you can't have access to credit. Over time, its impact dulls. Furthermore, the more you project good credit habits, the more quickly the foreclosure's impact will be blunted. For example, always paying your bills on time and not overusing your existing credit cards will help your score go up. While your score may take years to reach a very high level, you could earn a score that is good enough to access new credit in just a couple of years.
Becoming a Home Buyer
Foreclosure doesn't mean that you'll never buy another house. Depending on circumstances, you might be able to get another mortgage within a few years of foreclosure, or even less. For example, at the time of publication, the Federal Housing Administration mortgage program doesn't require you to wait even three years to get another loan; you can be eligible for a home loan in just one year after a foreclosure or bankruptcy if an income reduction or job loss caused your foreclosure. Another option is to use seller financing to buy a house without getting a traditional mortgage.
- Nolo: Zombie Foreclosures
- Nolo: Deficiency Judgments: Will You Still Owe Money After the Foreclosure?
- DailyFinance: Seven Secrets for Finding a Rental After Foreclosure
- The New York Times: Credit Score Recovery Time After a Foreclosure
- Bankrate: FHA Loans After Foreclosure
- Bloomberg: Home Sellers Step Up as Last-Resort Lender to Poor-Credit Buyers
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.