Utah was once the foreclosure capital of the US (world?). I remember. I was one of very few people who knew about doing loan modifications and short sales about 12 years ago. In that time I have worked with hundreds, perhaps thousands that have all experienced having bad credit because of a foreclosure, bankruptcy or late payments preceding a loan modification.
Now coming full circle, I am seeing many of these people come back and ask about getting a home loan and buying a home after foreclosure. When they ask “Can I buy a home again?” I have great news for them. The answer is!!!
Maybe.
I know. That was kind of messed up. Get your hopes up like that and then jump right into reality. But thats what people want; They want answers that are real not fluff.
So today I am going to spell out what your options are so that whether you are now several years past your “troubles” or are just about to enter them, you will fully understand what your options are.
Understand what it takes to get a loan today
Loan guidelines can change. Sometimes daily; So its important that you stay up to date on them. My suggestion would be to form a relationship with a lender that is an expert on credit. This way you can periodically communicate with them about whats going on in lending and make sure that you are doing what you can to stay qualified.
When we meet with a prospect the first thing we do is lay out a detailed “Map to success”. We look at what their credit score is now and review all the factors that contribute to it. We discuss what needs to be done with each item and discuss a time-frame for accomplishing these things.
A typical client may need anywhere from 30 days to 12 months to fix any credit related issues.
The most common issues you may deal with if you have had a foreclosure or bankruptcy are:
- FHA requires a minimum of 3 years since a Foreclosure, Bankruptcy or the last 120 day late (considered the same as a foreclosure to underwriters)
- You cannot have any derogatory credit in the last 12 months. (No late pays etc.)
- Credit score must be a minimum of 620. (there is a “hit” or penalty to the rate below 660…this is a Lender thing, not FHA)
- Make sure all of the debts included in a Bankruptcy are being reported to the credit bureaus as “Included in Bankruptcy”. Items often report inaccurately and can impact your scores or an underwriting decision as it could cause it too look like you were late or had a derogatory report (see #2)
- FHA allows you to have up to $4,000 in Medical Collections however all other Collections and Judgments must be satisfied.
- To have a good credit score after Bankruptcy or Foreclosure the most important thing you can do after you have “stopped the bleeding” is establish 3 revolving lines of credit (read: Credit Cards) and keep the balances below 30% of the available credit limit (10% is optimal). DO NOT use Store credit for this strategy. One of the best methods is to obtain an overdraft protection line of credit on a checking account. They report just as if they were a credit card and help re-establish credit scores.
Look for opportunities to own now
We have a lot of clients who own their home now and do not qualify for a loan.
This is possible by finding a home where the seller is willing to finance the property for them. Often called Seller Financing or a Contract for Deed, this method can allow you all the same rights and benefits of buying a home with a traditional mortgage without having to be fully qualified at the time of purchase.
This is sometimes confusing, so often what I do is have people imagine something smaller than a home. Think of a car. Lets say I have a car that I want to sell and someone comes along and says they want my car but they cannot get a loan right now.
Lets also assume I own the car outright, so there is no loan still owed against it.
I have the option to sell it to them and they would make payments to me rather than a bank or credit union. The terms of the agreement are completely negotiable between me and my buyer.
This gives you some big benefits:
- You own it legally. This means any interest paid is likely tax deductible (I am not a CPA, please consult one before signing any agreements)
- When the time comes to get a Mortgage you can now refinance rather than get a loan for a purchase. Refinances typically have less closing costs so you save money!
- Money spent on the property benefits you not a landlord.
This might seem a little backwards, but owning a house first and then working on your credit as you work towards refinancing can be a great way to go. This is a great strategy that is a legitimate way to have your cake and eat it too.
Summary
If you know ahead of time what you are aiming for you can make sure you hit your target. Get with a lender that is an expert with Credit, its worth knowing ahead of time what you need to do to be ready for the day when your credit is back on track.
If you would like to own a home but have had some credit issues we are a local Mortgage Bank located in Utah. We have branches from Salt Lake City, Layton, and Riverdale Utah. We specialize in working with people that have had credit problems but want to get back on track. Whether you are just about to file Bankruptcy or think it might be time to buy again, call us and we will discuss all your questions and show you all the options available. We are Utah Mortgage Team and our address is 101 N Fort Lane #104 Layton, UT 84041.
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