During the housing crisis that began in 2008, nearly 4 million homes were foreclosed on each year across the United States. Many North Carolina homeowners who lost their homes to foreclosure during that time are now back on their feet and are now entering the housing market once again as “boomerang buyers.” If you are a boomerang buyer hoping to own a home again, read on to learn how to buy a home after foreclosure.
Make Sure Your Waiting Period Has Expired
Unfortunately, having a foreclosure on your record precludes you from a home purchase for four years, or two years if you can document extenuating circumstances. This waiting period begins at the completion date of the deed-in-lieu of foreclosure, preforeclosure sale or change-off as reported on the credit report. If you experienced foreclosure, make sure you have met the requirements of the waiting period before you try to purchase another home. The good news is, this waiting period allows you ample time to get your financial situation in order and save for a down payment.
Repair Your Credit
Aside from bankruptcy, few things negatively impact your credit like a foreclosure. Because it remains on your credit report for seven years, it will have a long-term effect on your credit—dropping your score by as much as 250 points. That means that even if you had good credit to begin with, a foreclosure could drop your score to a level that is unacceptable to lenders. However, time is on your side. Before you consider purchasing a home after a foreclosure, you should be mindful of your credit rating and take steps to repair it. Some things you could do include:
- Disputing errors on your credit report
- Making all of your payments on time
- Keeping credit card balances low or eliminating them altogether
- Leaving old debt on your credit report and avoiding closing credit accounts
Manage Your Debt
If you are like many homeowners who faced foreclosure, you likely accumulated some debt while you were trying to make ends meet. Whether that debt is in the form of loans, credit cards or other types of accounts, it is important to manage your debt and get it under control before you make a home purchase. When preparing to buy a home, pay down your debt as much as possible to lower your debt-to-income ratio. Having less debt in your name will help you not only secure the best mortgage rates in the future but also free up more money for your mortgage to make home ownership affordable.
Secure Your Down Payment
Although down payment requirements have decreased across the board for home purchases, lenders may require larger down payments from boomerang buyers than from others. You should expect to put down at least 10%, or more if you can afford it. A larger down payment is a great way to show lenders that you are financially ready to purchase a home again, but you may be able to secure a home loan with a down payment of less than 5% if you consider loans like the NC Home Advantage Mortgage™ with down payment assistance through the NC Housing Finance Agency.
Buying a home after a foreclosure doesn’t have to be intimidating. After you have gone through these steps, a good place to start is by talking to a lender and a real estate agent. With a little time and hard work, you can enjoy home ownership once again.
