If you have had to handle a housing foreclosure since the Market Crash in 2008, you’re not alone. These events can be both stressful and financially devastating, and some parts of the country were certainly hit harder by subprime lending and the crash than others. Or you may have a problem reflecting a more recent trend. During the summer months of 2018, foreclosure rates were reported to have increased in 22 states and roughly half of the 450 major metropolitan markets one property tracking agency studied. States including Delaware, Maryland, and New Jersey, where one of every 605 properties was engaged in the foreclosure process have been particularly affected. Certain cities including Chicago, Illinois, Houston, Texas, and Cleveland, Ohio, have also seen marked increases in foreclosures during 2018.
Regardless of where you live or when you experienced foreclosure, there’s no question that this is a difficult experience. If you were among the people affected, the situation may seem hopeless, but we are here to assure you that there is hope.
Fortunately, you can recover from this type of financial emergency with some dedication and time. We have broken down surviving housing foreclosure, picking up the pieces, and moving on to future home ownership into five basic steps.
You will likely be subjected to a waiting period of some kind following foreclosure before property ownership is an option again. The typical waiting period is 7 years. There, are, however, circumstances under which this time period may be shorter, even as short as only two years before you may be able to apply for a loan again. Examples of circumstances that may reduce the wait to two years include the following:
FHA loans may be reapplied for after only three years. But the following extenuating circumstances reduce your wait time for an FHA loan by one more year:
If more than one of these circumstances applies to you or you are otherwise unsure of your options, check with a trusted real estate attorney--or bankruptcy attorney if you are handling that process as well.
Even when your loan money is flowing again, you will still have to come up with the funds to cover down payments, closing costs, and of course, the money to pay for help from the proper real estate and financial professionals. For most people who have experienced foreclosure, this will entail a nice close look at your spending habits.
Many of us have areas where we can trim some spending fat, or at the very least, save more effectively. Finding the best areas to cut down on expenses will require close scrutiny of your current spending habits and which “luxury” items you can live without, or lower the costs on. Similarly, it may benefit you to start making automatically savings deposits on a monthly basis--perhaps when you pay your bills so you don’t have to consciously think about it. Squirrelling away any extra money you receive, whether it’s your tax return, a Christmas bonus, or a gift from your dear old Aunt Ida, can also be useful for both emergency planning and saving towards a new home.
Credit repair is possible, and it’s best to begin rebuilding your credit as quickly as you are able to. Foreclosures can do serious damage to your credit score, even if you have a lengthy history of good credit prior to the incident. The only way to get that credit back is the way you got it in the first place: step by step. Fair Housing Act loans tend to require a minimum credit score of 580. Conventional lenders may have higher standards in the 640-650 range. Either way, it is likely that you will need to be consistent in your approach to repairing your credit.
Making regular payments is the first major step you can take. Approach your highest interest payments first and work your way down. While you’re at it, keep any records of your typical rent and utility payments so that you can show you also are reliable on these fronts. You may have to wait up to two years to see a substantial improvement in your credit score, but with consistent positive action, it will come.
Although there are some tactics that will help everyone regardless of their credit score, it may be helpful to have an expert take a look at your situation. He or she may be aware of some tools that you didn’t know about. One credit expert we interviewed recommended paying down to approximately 15% of one’s balance monthly to build credit faster in certain situations. Learn more free tips by listening to our complete interview with Wayne the Credit Guy over at The Real Estate Nerds Podcast. He has tips for you regardless of whether you’re trying to rebuild poor credit or improve good credit.
Lenders with minimal qualifications may seem incredibly tempting during times of financial hardship. If you are struggling to make ends meet, it can be difficult to ignore offers of loans that would make your life more comfortable in the short term even if you know they are not in your best interest.
Whether a lender approaches you with instant approval for a payday loan or a “no money down” real estate offer, your response should be the same: be skeptical. Odds are high that the interest rates on such loans will be astronomical and overall not worth it in the long run. Any deal that sounds too good to be true most likely is. Remember, part of what created the market crash in 2008 was too many loans going out to those who could not be reasonably expected to repay them.
Housing counselors are one type of professional that may be helpful to you during this time. These professionals can connect you with resources and other professionals who can help you get back on the path to home ownership. Housing counselors may provide a range of services, including assisting you with making savings plans and rebuilding credit while acting as liaison to other professionals who may be helpful to you.Attorneys and CPAs may also be a valuable part of the process of getting your finances back into order. Some of the insights that our experts at Royal Legal Solutions can offer you include retirement planning tips, tax liability minimization--including pointing out areas where you can save, and which legal structures will offer you credit protection when you are ready to start investing again. If a loved one or spouse has investments that could benefit from asset protection, we are happy to assist them as well and ensure both of your estate plans are up to date.
Between our full range of services and the many professionals we maintain professional relationships with, such as CPAs, Royal Legal Solutions has advice that can help you repair your financial life and defend the capital and assets you do have from future threats. To learn what we can do for you, schedule your consultation today.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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