Foreclosure is a painful, emotional and life changing event. Foreclosure can be emotionally charged with feelings ranging from grief to anger and guilt. In addition to the emotional hardships foreclosure brings questions about where to go financially. With over one million homes currently in foreclosure many people across the nation are feeling the same as homeowners here in Columbus.
Allow yourself to grieve but don’t pass blame
The first priority after a foreclosure is addressing the emotional effects. Many homeowners describe feelings similar to when a loved one dies. They often feel a sense of loss and failure. Blaming oneself or a spouse only prolongs the feelings.
Talk to children about what is happening
Reassure children that the family will be fine and that it wasn’t their fault. Children feel a myriad of emotions. Some may seem irrational to an adult, but to a small, confused child they are very real. Allow children to speak openly about their feelings.
Find a pastor, friend or councilor to speak to
If the feelings are to much to deal with alone don’t be afraid to speak with someone. Talking openly about feelings will help the healing process.
Make a plan to build a positive credit history.
If the foreclosure is part of a bankruptcy this step is even more important. The old adage was seven years to rebuild your credit score. Credit has changed since then and many people find themselves purchasing homes and getting loans in as little as three years from a bankruptcy or foreclosure.
Review credit reports
Pull credit reports from all three of the major credit bureaus around four months from the time the foreclosure is finalized in the courts and review these reports annually. Make sure all the information has been reported correctly.
Pay bills of time
Most importantly will be making your rent payments on time. This will effect the purchase of another home. Having a positive rental history will let banks know that you have pulled your finances together.
Reestablish lines of credit.
It seems absurd to say that you need debt to rebuild credit but it’s true. If the foreclosure was part of a bankruptcy this is even more important. Establishing small credit cards and then paying on them in a timely manor shows a willingness to accept the responsibility of debt and further isolates the bankruptcy or foreclosure as an isolated event.
Create a budget.
Record every purchase and bill paid in a thirty day period. Review those numbers and eliminate those items that were not essential. Things like magazine subscriptions or trips to the movies can be cut from a budget very easily and the money saved can go towards remaining debt or into savings for a down payment on a future home. It may seem like insurances like life insurance or renters insurance are not necessities but they are. Maintain your insurance but look for discounts, like bundling them all together with one company. Once the essential items have been identified create a budget and stick to it.
Create a goal statement
List out all the remaining debt with the smallest amounts first. Write at the bottom of the paper what your goals are in one year, two years and so on. Work on paying the remaining debt off smallest to largest. Seeing these items get crossed off your list will create positive emotions and help foster hope in a household.
Speak with a mortgage broker
If your goal is to purchase another home then sitting down with a mortgage professional is a necessity. Many mortgage brokers are more than happy to sit down with someone and talk about where they are and what they need to do for a future home purchase. Be open and honest with them about the situation and what your goals are. They can help by outlining the steps needed to get approved. FHA requires a minimum of three years from the time of foreclosure before a borrower can apply for another loan. After three years a borrower is also considered a first time homebuyer and can qualify for many state specific programs and tax credits.
Rebuilding credit does take time. Don’t be fooled into scams that claim to get a foreclosure erased from a credit report. Often the programs ask for a fee upfront and then never deliver what they promised, or they cause more damage to the credit score. Use the time instead to regain a strong financial footing.