While experiencing a foreclosure, many people wonder if they will ever own a home again. From the lasting trauma of having their houses reclaimed to damage to their credit, people who’ve been through foreclosure often don’t see home ownership in their future. However, a recent article published in the Huffington Post states otherwise. Apparently a growing number of foreclosure victims have returned to the market and are buying homes.
The Federal Housing Administration (FHA) is largely to thank for the ability of foreclosed individuals to get back into home ownership. The stringent guidelines set out by conventional banks have caused a lot of people to turn to the FHA and to seek loans through the Department of Veteran Affairs and the Department of Agriculture. In general, FHA borrowers need a credit score of 620 and a down payment of approximately 3.5% of the total home’s cost. Borrowers should also expect to pay up front mortgage insurance premiums of 1.75 percent of the loan and an annual premium of 1.25 percent.
Despite the ability for some people to purchase again, it is still important to know what you’re getting yourself into. According to Edward Pinto, resident fellow at American Enterprise Institute, the “FHA is putting people back into situations that still have high risk of default.” The low down payment combined with a previous history of default may foreshadow the possibility of people taking out home loans that they will be unable to afford in the long run.
Most of the people who have foreclosed and are now purchasing homes began rebuilding their credit immediately after their foreclosure. Since a bankruptcy remains on your credit for seven years, it is important to take the necessary steps to pay bills on time and help recuperate a low score.
Money Girl offers several tips to help rebuild your credit after a foreclosure so that you can move back into the buyer’s market. First and foremost is paying bills on time. Second, she advises that you obtain a secured credit card, which you use, but pay in full each month. She also advises that you wait at least two years before trying to buy a home and use that time to save money for a substantial down payment, which can often sway lenders if there is a bankruptcy or foreclosure on your credit.
If you’re thinking of getting back into home ownership in East Lansing or the Greater Lansing area and would like more information about real estate for sale or getting pre-qualified for a mortgage, please contact me at MyRealtorRob. As an East Lansing Realtor, I work with a lof of buyers, including those who have previously experienced foreclosure and I’m more than happy to help you get get started on the path to recovery.