Regardless of the circumstances that led to it, losing your home to foreclosure can be very troubling. Even if it was due to circumstances beyond your control, it still hurts. But as bad as it may seem now, there is life after foreclosure.

First Things First

If you have not already found another place to live, that should be your first priority. This is not something you want to leave to the last minute, thinking that you will be able to move anywhere you want, whenever you want. A foreclosure works on a strict timetable, and the process is clearly defined. You will receive notices explaining the timeline. Don't ignore them.

NOTE: If you are considering filing bankruptcy as well, do not file the bankruptcy before you move to your new residence. When you apply for a rental, they will draw your credit report. If it shows you are in an open bankruptcy, they will not rent to you. An open bankruptcy means you will have to include the new lease in the bankruptcy, and your new landlord would not have the normal protections allowed by law. You could skip out on the new lease without penalty. No rental company would enter into a new lease agreement, knowing they would immediately be included as a creditor in a bankruptcy. Be sure you move either before you file for bankruptcy, or after your bankruptcy is discharged. Either way is OK.

 

Life after Foreclosure - Now What?

Once you are moved and settled in to your new residence, it's time to review where you are with your reports. Your first thought will probably be... "Will I ever be able to buy a home again"? The answer is yes, you can. But you have some work to do to get your FICO scores back up to par.

Step one is take a look at where you are now. You will probably be at one these three situations:

1. The best scenario is, you have an established credit history and you managed to keep current on your other bills, even though you couldn't make your house payments. In this situation, your history should look fairly good except for the foreclosure. The strategy here would be to continue keeping your payments current. Each month the foreclosure record gets further away, and your positive payment history increases your scores. After six months of excellent payment history after the foreclosure, you should be able to qualify for a new home loan with a few lenders (but at 1% to 2% higher interest rates). After one year, you can qualify with more lenders. After two years of good payment history, you can qualify for an FHA loan (at normal interest rates). After five years of good credit history, the foreclosure would not be a factor and you could qualify with any bank you want, and at normal interest rates and terms.

2. The next scenario is, not only were you not making your house payments, you were often times late with your other bills. Maybe even had one or two bills go to collections. The late pays and the collection accounts will drag your scores way down. Although you should be able to clean your files up, it will take some work and perseverance. (see credit building suggestions below).

 

3. The last scenario is, not only did you lose the home to foreclosure, you also had to file bankruptcy. This double whammy to your credit report is not good, but the effects of it can be overcome. (see suggestions below).

There Is Life After Foreclosure - Here is a Five Step Credit Re-building Plan to Follow:

1. Make a budget so you know how to allocate your income every month.

2. Get copies of your reports from all 3 bureaus and submit disputes on errors in your reports to have them removed.

3. Open one or two secured credit card accounts and begin establishing a responsible history with them. Do not charge more than 30% of the high limit on the card(s) ever, and make payments 5 to 7 days early every month.

4. Open different kinds of credit lines in addition to the cards. A secured bank loan and a department store account would be good places to start.

5. Never take on more debt than you can handle comfortably. The idea is to re-build your credit, not to get buried by it. The way you re-build it is by using it wisely and responsibly. Lenders place the most weight on your current history. Even though you had problems in the past, how you are handling your responsibilities now carries the most weight.

Losing your home to foreclosure can be very troubling. Even if it was due to circumstances beyond your control, it still hurts. But as bad as it may seem now, there is life after foreclosure.