Life After Foreclosure: Rebuilding Bad Credit

By Karen Lawson
Mortgage Credit Problems Columnist

Although it's possible to buy another home after you've been through foreclosure,    taking time to improve bad credit can help increase options for mortgage loans and finding a home you can afford. Mortgage lenders develop loan terms to suit a wide array of budgets and credit problems. Rather than taking the first bad credit mortgage offered to you, improving your credit can help you qualify for more mortgage options at lower cost.  

Bad Credit Mortgage Loans: Mistakes Can Cost More

If you have bad credit, you may be able to qualify for non-standard mortgage  financing that doesn't require much background information. This may seem like  a relief, but you'll pay more for this type of bad credit mortgage. Why? Lenders  charge higher interest rates and other financing costs according to the risk  involved in making the loan. If you have foreclosure or bankruptcy on your  credit report, there is a high degree of perceived risk for the lender. Taking  time to rebuild your credit can help you get more favorable mortgage terms.

 

Knowledge is Power: Working to Improve Bad Credit

You'll want to formulate a cash based household budget. If buying a home is  your foremost goal, you may have to sacrifice non-essential expenses until  you have all of the following::

 
• Emergency savings account: You'll need savings to cover    home repairs, unexpected expenses, and loss of income.
 
• Down Payment: Buying a home with a small down payment    is hard to do if you are already considered a risky proposition. The fees    and rates can be high. A larger down payment reduces lender risk and can    help you qualify for better mortgage loan terms. Save at least 10% of the    expected purchase price of your new home.
 
• Control credit card spending: Pay off all credit card    balances, and use credit cards no more than you can comfortably repay in    full every month. Using cards and earning good repayment records can help    improve bad credit, but carrying balances of more than one third of the credit    line on any card can negatively impact your credit score.

Buying a home you can truly afford takes time and effort. If you're tempted  by instant gratification, this can lead to trouble. You may buy a home you  cannot afford with a mortgage that you don't fully understand. Preparing for  buying your next home can help ensure financial security and good credit standing. 

Source:
Buying a Home Jan 08, 2008

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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