Can I Buy Another Home During a Foreclosure Process?

Reader Question: Can I buy another home while current home is in foreclosure?

Somebody asked a similar question a couple of weeks ago, so you might want to start there:
Current home is in foreclosure and I want to buy another

Can you purchase another home while yours is currently being foreclosed upon? Sure you can ... if you can afford to pay cash for the home. But if you need to get a mortgage loan for your next home purchase, I would say your chances are slim to none (for right now, at least). I don't mean to sound harsh. I just feel that painting a rosy shade on it would be a disservice to you, and also dishonest.

You will be able to get another mortgage someday. But it won't happen while your current home is in a foreclosure process. To understand why, you have to step out of your own shoes and into the shoes of a mortgage lender. Many of them are in survival mode right now, because they have a lot of nonperforming loans on the books (from foreclosures) and no way to recoup their losses or prevent further ones.

Additionally, the record-breaking numbers of foreclosures we have seen recently were the primary cause for our economic crisis. So when you approach a mortgage lender for a loan in your current situation, you are saying this:

"My current home is in foreclosure because I could not make the payments. And I know that's something you're terrified of right now, given the shaky ground your bank is standing on. But how about giving me a new loan anyway?"

If you haven't done so already, I would talk to your current lender about workout options to avoid foreclosure on your home. A lot of lenders are offering repayment programs and the like to help homeowners get back on track. I don't know how far into the process you are, so it may be too late for such a program. But it's worth some further research.

Current Home in Foreclosure - Want to Buy Another

Reader Question: I have a home that just went into foreclosure. I have moved into a house that I would like to finance in the future. How long will I have to wait to get it financed after foreclosure on another home?

Somebody asked a very similar question about three weeks ago, so that's worth a read. Of course, a lot has happened over the last three weeks. More banks are struggling, more bailout issues, foreclosure rates are still soaring, etc. The economy is in a tremendous state of flux right now, so it's hard to say how long you might have to wait. It could be a long time, given the foreclosure issue. Banks are not making loans to anyone they deem risky right now.

Did you talk to your current lender about ways to avoid foreclosure? I'm not sure where you are in the process, but many lenders have "workout programs" for avoiding foreclosure altogether. A repayment plan is one of those options, and there are others as well.

If you're past that point, and foreclosure is inevitable, there's not a lot I can tell you. I wish I could! It's just a really tough time right now, so predictions are out the window. My advice is to work on improving your credit score as much as possible in the meantime. A home foreclosure will lower your credit score some, so you want to build it back up over time.

I think eventually, when some of the "dust" has settled from this current mess we are in, banks will be somewhat forgiving toward foreclosure victims. After all, the lenders themselves have some blame in this mess. So if you can work on improving your credit to show that you're not a risk to lenders, they may be willing to "forgive" the foreclosure in your history.

I just can't predict -- or even guess -- how long what will take. I'm not sure anyone can right now. I don't know how much help I was, but good luck anyway!

Mortgage Repayment Plan to Avoid Foreclosure

Reader Question: I have gotten behind on my mortgage but avoided foreclosure. To do this my mortgage company took the thousands of dollars in penalties and fees and thus increased my payment. Is this normal? Is there a name for this practice?

First of all, congratulations for hanging in there. It sounds like you realize the importance of avoiding foreclosure if at all possible. I hope it works out for you.

Mortgage companies have many programs designed to help borrowers get back on track with mortgage payments. Collectively, these are known as mortgage "workout" options, because they help you work your way out of a possible foreclosure situation.

Reinstatement, repayment, forbearance and loan modification are all examples of loan workout options for homeowners who fall behind on their payments.

Your situation sounds like a typical repayment plan. Through this process, the homeowner / borrower will make the regular mortgage payments plus a little extra to cover back payments and fees. From what you have described, it sounds like your lender has created a repayment plan to help you get caught up over time.

You are not alone in the fact that you haven't heard of this. Many of the folks who were foreclosed on in recent months had no idea that these workout options existed.

Buying a House After Foreclosure

Reader Question: How soon after going through a foreclosure can I buy another home?

This response assumes that you will need a mortgage loan to pay for the house. I'm sure that's the reason for your question, but I just wanted to clarify for other readers.

Buying a house after foreclosure has become a popular topic and a frequently asked question, due to the vast numbers of Americans who have been foreclosed on lately. Unfortunately, there is no specific answer for it. So I will do my best to answer it in a general sense.

Let's start with the obvious. Buying a house after a foreclosure could be a challenging process. Most lenders will view your financial history as an indicator of what you are likely to do in the future. For example, if you missed several months of mortgage payments leading up to your foreclosure, then a lender will see you as a likely candidate for a future default on a loan -- in other words, a big risk.

Of course, there are plenty of variables here that I'm not aware of. For instance, buying a house immediately after a foreclosure is a lot harder than buying two or three years down the road. I often use the prison / parole analogy of "time and good behavior" when explaining this concept to buyers. Here's what it means. Buying a home after foreclosure gets easier with time, as long as you have good behavior. In this context, "good behavior" means being financially responsible and rebuilding your credit.

When you go through a foreclosure process, your credit score takes a hit. This is one of the reasons so many people have trouble qualifying for a loan and buying another house after a foreclosure on a prior home. How badly the score is affected will depend on several things, such as a person's past financial history. So if you haven't done so already, you should request your credit score to see where you stand.

The more you can improve your credit score after a foreclosure process, the greater the chances of getting another mortgage loan down the road. Forgiveness exists in the lending industry ... it just comes slowly and gradually. Now you can understand the "time and good behavior" analogy.

After Foreclosure in the Current Economy

Now let's address the elephant in the room we haven't touched on yet. The current economy. Everything I just explained makes perfect sense in a stable economy. But our current economic situation is anything but stable. There are record numbers of foreclosures taking place. Financial institutions are falling down like dominoes. And as a result of all this, mortgage lenders are a lot stricter with their credit and lending policies.

In other words, buying a house after foreclosure is much more difficult today than it was in the past. Lenders are not just considering your financial health -- they are also considering their own financial health. If you've been watching the news lately, you'll know why.

My Best Advice for Buying

Every home buyer / mortgage applicant will have a different experience when trying to buy a house after a foreclosure process. Some people will have a history of financial problems, so the foreclosure will affect them more severely. For others, the problem was an isolated one, so they'll be in a better position after the fact. So there's no way to say how a foreclosure will affect people across the board -- except to say that it will certainly make things more challenging.

Remember the time and good behavior analogy from earlier. The best thing you can do when buying a home after foreclosure is to be patient and proactive. Be patient, because it's going to take some time to improve your situation. But be proactive about improving your credit score. You can also benefit by paying down some of your debt, starting with those high-interest credit card balances.

The biggest thing to avoid is getting into another situation where foreclosure could be likely. For example, if you don't wait long enough after foreclosure before trying to apply for a mortgage, or if you don't improve your credit score enough ... the lender will pile a ton of interest on top of your loan. If that makes your payments beyond reach, it could create another foreclosure situation.

Foreclosure Solutions - 3 Ways to Avoid Foreclosure

The number of home foreclosures in the United States have reached an all-time high. This is probably not news to most homeowners. After all, you hear about it on the news all the time.

But many people are less familiar with the various ways you can avoid having your house foreclosed on in the first place. In reality, there are several foreclosure solutions that homeowners can pursue. Which path you choose will depend upon your unique financial circumstances.

Solutions for Avoiding Foreclosure - Two Flavors

The first thing we must establish is that, generally speaking, there are two paths you might take here. Which path you take will depend on whether your financial problems are only temporary, or if they are more long-term in nature:

• If your financial troubles are short term, then the best foreclosure solution is to avoid foreclosure altogether by getting back on track with your mortgage payments.
• If your financial woes are more long-term, then your foreclosure solution will likely involve selling the house in lieu of having it foreclosed upon, probably through a short sale technique.

In this article, I'd like to talk about the first scenario listed above. Let's use some hypothetical homeowners for this foreclosure solution scenario -- we'll call them John and Jane Doe. In this scenario, John and Jane are merely having temporary financial issues, and these issues have put them behind on their mortgage payments.

But things are now looking up for John and Jane now, from a financial standpoint. So they are eager to get back on top of their mortgage payments and avoid home foreclosure altogether.

The first thing that John and Jane should do (if they haven't already) is get in touch with their mortgage lender. The lender can help them identify a feasible solution for getting caught up on their payments. These are often referred to as mortgage "workout" solutions -- ways to get back on top of your mortgage payments to avoid foreclosure.

So John and Jane have a meeting with their mortgage lender Sally Smith, and Sally explains some of the ways they might be able to get back on track with their mortgage payments. Sally presents the following solutions for foreclosure avoidance:

• Reinstatement -- This is a way to pay off the back payments as a lump sum, usually by a mutually-agreed-upon date in the future.
• Repayment plans -- With this type of solution, you work with the mortgage lender to create a payment plan, through which you will get caught up on your mortgage. Basically, this plan takes the money owed from missed payments and spreads it out over future payments.

With the reinstatement solution, you will pay off your back debt as a lump sum by some future date. With the repayment option, you will pay off your back debt a little at a time, by spreading over your future mortgage payments.

These are just two solutions for avoiding foreclosure on a home. Both of these options apply to situations where the financial problems are only temporary, and the homeowners intend to keep the home. There are other options as well.

So here are the key points to take away from this lesson:

• There are certain foreclosure solutions available to you.
• The path you take will often be determined by the short-term vs. long-term nature of your financial problems.
• Different mortgage lenders will offer different solutions for avoiding foreclosure and getting caught up.
• You should contact your mortgage lender as early as possible to work toward a common solution.
• Mortgage lenders are willing to help -- and would like to avoid foreclosing on the home as much as you'd like to avoid it.

======================================
Learn more about how to stop foreclosure on a home
======================================