Applying for a Mortgage after a Foreclosure

Facing a foreclosure can have a negative impact on your credit. For many, a foreclosure may affect their credit and financing options. It can prove challenging to obtain a loan. During the first two years after a foreclosure, it may be difficult to get a car loan or credit card that does not have an extremely high interest rate. Finding a lender willing to give you a mortgage may be challenging.

The three main credit report firms are Equifax, Experian, and TransUnion. When calculating your FICO score, all three of them factor in your foreclosure for seven years. They also consider short sales, settlements with credit card companies, and other negative financial events when determining your score. If you filed for bankruptcy, that can affect your score for 10 years. You can obtain a free credit report from each of the three firms once every 12 months. It is advisable to take up that offer from time to time to see what black marks are on your report.

Many victims of the housing market crash are still within that seven-year period since they lost their home. If you lost your home to foreclosure during the crash, you may want to run a credit score and find out how much longer it will affect your score. It may be in your best interest to wait on pursuing a new mortgage until that foreclosure is off your record. Waiting can save you money in the long run.

However, if you are a couple years removed from having a clean record, you may want to get a mortgage now. This may work in your favor because mortgage rates are low right now and they may be higher later. Since now is a good time to buy, you may receive a better interest rate now even with the black mark on your report than you would later after the foreclosure is removed from your report.

Here are a few tips to consider when applying for a mortgage after a foreclosure:

  • Pay down your credit card debt. Having less credit debt will raise your rating. Credit card spending typically accounts for 30 percent of your FICO score.
  • Avoid other loans. Now is not the time to pursue a new car loan or financing for furniture or appliances. You don’t want more borrower debt.
  • Pay on time. Avoid other black marks on your records by paying your loans on time.
  • Seek guidance. A foreclosure attorney can help guide you through the process of repairing your credit and obtaining a new loan.

Need help with your foreclosure in Orange County? Contact McFarlin LLP today for immediate legal assistance.