How to Get Back On Your Feet After Facing Foreclosure

A foreclosure can be a tragic event. However, this situation instead delays than shut your chances of being a homeowner. Some people who have lost their homes in recent years will be able to re-enter the housing market as rents rise, mortgage rates remain low, and the economy eventually rises. If you’ve recently experienced a foreclosure, here’s how to get back on your feet and start looking for a new house.

Identify your Options

According to the national nonprofit NID Housing Counseling Agency, you don’t have to wait seven years after a bankruptcy or foreclosure to buy another property. For homeowners who have extenuating circumstances such as protracted income loss and hefty medical bills, a short sale or conveyance in place of foreclosure up to three years after a foreclosure. This is a significant reduction from the typical four and seven-year wait times. According to the Department of Housing and Urban Development, the usual wait time for a Federal Housing Administration loan after a foreclosure is now three years — and as little as one year in exceptional cases.

automated payments

Improving Your Credit Score

Starting to repair your credit is the first step in the process of recuperation. According to a recent FICO research, the higher your credit score was before the foreclosure, the longer it took to recover fully. A homeowner with a credit score of 750, for example, would take three years to reclaim their pre-foreclosure credit score. However, a homeowner who started with an 850 credit score would take seven years to recover following a foreclosure.

The most excellent strategy to rebuild your credit is to keep utilizing credit while making sure you pay your bills on time. When credit scores suffer a significant setback, many people make the error of canceling credit lines or tearing up credit cards. However, altogether avoiding credit may leave a significant gap in your credit history, which is nearly as bothersome to lenders as terrible credit history.

Lenders want to see you use credit regularly but in a responsible manner. Create automated payments to avoid missing a due date by accident. If you have a hard time coping, talk to your lenders about modifying your payment schedule. You’ll also want to request a copy of your credit report to ensure there aren’t any mistakes or instances of fraud that could lower your score. You may acquire a free yearly credit report from Annualcreditreport.com, which will allow you to follow your progress, thanks to federal law.

Be Keen on Your Tax Obligation

Your forgiven debt could be subject to taxation by the IRS.

The IRS website states that you could be taxed on the difference if your previous lender can’t recoup the entire value of the forgiven mortgage when they sell the house.

In reality, Congress passed the Mortgage Forgiveness Debt Relief Act in 2007, protecting foreclosed homeowners from being taxed in certain situations. However, that law was set to expire this year.

There are still exceptions. After a foreclosure, not everyone is slapped with taxable “income.” According to the IRS, if you can establish you’re insolvent, some or all of your forgiven debt may not be taxable.

Change Your Expenditure

Establish a strong savings plan, pay down debt, and avoid additional extravagance expenditures. Know the amount you can come up with for a house. One of the most challenging obstacles for homebuyers is saving for a down payment and closing costs. Imagine yourself short of the extra money you make and save bonuses, payouts, and other additional earnings in a savings account. Another approach to increase your down payment reserves is to set up automatic transfers to your savings account. This eliminates the temptation to spend money unnecessarily.

Invest Your Time

Credit repair is merely one aspect of the wait. You’ll still need to find a lender who will lend you money. Unfortunately, many lenders will give you the cold shoulder following a foreclosure. There are, however, some government-backed loans that can assist speed things forward.

An FHA loan is the easiest route back to homeownership for many people. After a foreclosure, the government mandates you to wait three years before applying for another FHA-backed loan. The wait time for Fannie Mae and Freddie Mac loans is even greater. Both of those lenders need a seven-year waiting period before considering you for a new loan. Few exceptions can help expedite the process. You may be able to qualify for a new loan sooner if you can show that death caused the foreclosure in the family or an unexpected job loss. Contacting a foreclosure defense will be best for outlining the other options that can be considered to speed up the process.

There’s only so much you can do in the face of a foreclosure, but being prepared can help. You don’t need additional emergencies when you’re already in crisis mode.

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