How to Approach a Second-Chance Mortgage After Foreclosure

Beginning a new home loan application through “Back to Work”

Don’t be intimidated by complex loan processes; use these steps to help you get back in the housing world after foreclosure.

1. Find the right lender
 Most lending agencies and banks turn away families who have faced substantial economic events in fear that it will happen again. However, agencies that offer the “Back to Work” program are understanding and will listen to your story. They have experience handling financial problems just like yours. The program is offered at lending agencies in all fifty states, which is designed for families who need a second-chance mortgage after foreclosure or another economic event.

2. Take housing counseling
You may be surprised by what you could learn from a housing counselor. Although your economic event may have been out of your control, a housing expert could provide you with life-changing financial advice. The FHA requires all “Back to Work” participants to complete at least one hour of one-on-one housing counseling. The agency must be approved by the U.S. Department of Housing and Urban Development and take place at least 30 days, but no more than six months prior to submitting a new loan application.

Housing counseling is designed to help families avoid making the same mistakes twice. They teach how to avoid scams and how to create and assess a household budget. Perhaps most importantly, they teach how to avoid repeating the same economic event again. This gives borrowers and lending agencies confidence that beginning a new home loan is a good idea.

3. Boost your credit
Although an event like foreclosure will stay on your credit history report for up to seven years, it’s never too early or too late to start boosting your credit score. “Back to Work” participants must have credit scores above 500. Borrowers must be able to provide a 12-month credit-history report that is clear of late housing, installment debt payments, delinquency and any other derogatory credit issues. Those with no credit whatsoever remain eligible.

4. Gather documentation
All “Back to Work” borrowers must be able to provide proof of a previous economic event. This can be shown through a Verification of Employment (VOE), W-2 form, old pay stubs or signed tax returns from the past two or three years. Lenders will also want to see recent copies of your pay stubs (30 days worth), and a clear copy of both your driver’s license and Social Security card.

If you receive additional income from Social Security, child support, alimony or a pension award, provide proof that will verify it. Also bring bank statements from the past two or three months from every checking and savings account you have, as well as 401K or other stock accounts. Any person who is signing the loan should bring all of these documents to apply for a new mortgage. This will help determine your financial situation after foreclosure and if the “Back to Work” loan is the right second-chance mortgage for your family.

What do I need to do to get ready to buy my first home?

Are you considering buying your first home? Congratulations! You probably have a million questions. Let's start with what you should do to prepare to buy your first home. These steps will help get you off to the right start, in the home-buying process:

Evaluate your credit report.
Look for mistakes in data, inaccurate records and dollar amounts. Be sure to check the small details – the lenders look at everything. Scan every word and number so you can see if there are any issues or inconsistencies. For example, you may be surprised to find relatives on your credit report or possibly you have someone that is still a joint holder of a bank account. You will want to clean up any of these issues before you start the home purchasing process.

Look for credit cards that you no longer use. You might want to close some, but keep in mind that lenders like to see long-standing credit relationships. Consider keeping your oldest credit card open, even if you are not currently using it. Having too many lines of open credit can be viewed as a negative value on your credit report. With this in mind, consider closing newer credit cards, which aren't in use.

Carefully select your mortgage lender.
Consider interviewing multiple lenders, to aid in selecting which one you will use. Remember, you'll be establishing a long-term relationship with that lender. Check for references and check with the Better Business Bureau to verify that the lender is reputable. Make sure that you are comfortable with that potential partner.

Keep in mind that a lender might try to tempt you with a slightly lower interest rate. This is especially common with Internet based lenders. Keep in mind the whole picture, a low interest rate is only one factor to consider. Be sure to calculate the entire cost of the loan, not just the monthly cost. What will the mortgage cost you over twenty years?

You want your mortgage lender to be available to answer any questions you may have. The lender can provide you financing options and help you determine what you will be able to afford. In addition, the lender can help you review your credit report and give you advice on how to improve it, if needed.

Compile a list of needs and wants in your life.
This includes the home (backyard, two bedroom, etc.), the lender (flexibility, established, good references), your life goals and ambitions. Where do you want to be (in your life) in twenty years? Do you want children, college expenses, etc.? All of these types of decisions will have some effect upon the decision of purchasing a property and how you will finance that property.

It is easy to desire every possible home option, but the reality is you will have to work within a budget. Before looking at houses, determine what you really need and which things you could live without. Consider things like number of bedrooms, number of bathrooms, lot size, neighborhood, school system, commute time, and proximity to shopping and restaurants.

At 1st Alliance Lending, we work closely with first time homebuyers. We help them through every step of the home buying process. We want to be your trusted partner. Contact us to learn more about purchasing your first home.