A record of bankruptcy or foreclosure can greatly damage a person’s credit history. Both on your credit report for seven years deeming you as a high-risk borrower for all creditors. Although some lenders do offer sub-prime loans, these come with higher interest rates and charges and a more difficult process of approval. What can you do if you need to obtain a home loan after foreclosure or bankruptcy?

Do not rush into buying a home immediately after bankruptcy. The first appropriate action would be to obtain a copy of your credit report from the three major credit bureaus (Equifax, TransUnion or Experian}. Check if there are any mistakes on your report especially on the accounts filed under bankruptcy or has been foreclosed. If you find any incorrect detail, notify the major credit bureaus right away.

Rebuilding Your Credit

Opening new accounts should be you next step. By rebuilding your credit before applying for a mortgage loan, you can avail of better rates from your lenders. However, do not submit too many applications to different creditors. Choose the accounts you would like to apply for very careful. If these applications are rejected by the lenders you applied for, it can also pull down your credit score.

It’s best to start with lenders that are more lenient on their policies. You can get a credit card, a department store card, or a gas credit card to start rebuilding your credit. Remember that the only way to improve your credit history is to pay off your debts religiously.

As much as possible, you need to achieve a credit score above 600 to prepare you for your next mortgage. If you can push your credit score above 600, you can easily qualify for a mortgage loan with 100% refinancing. This means, you don’t need to give a down payment.

Saving for a Down Payment

Don’t forget to save for a down payment of at least 20% or more while you’re rebuilding your credit. In case you get a credit score of 600 and below, you will be required to put down at least 20% on your mortgage loan.

If you don’t have enough to put down on your loan, you can avail of assistance programs like Neighborhood Gold or the Nehemiah program. These special programs help consumers who are in need of down payment for their mortgage loan.

You can also seek financial assistance for your relatives. If you borrowed your down payment from your relatives, this would need to be disclosed with your lender.

Buying Home After Foreclosure

Now that you’re ready to obtain a mortgage loan, remember the lessons you learned in your past mortgage. Choose your lender very carefully. Always compare different lenders before settling on one. Don’t forget to ask for a copy of a Good Faith Estimate of Costs from your lender days before the closing. This copy should clearly contain all the exact costs you will be paying on your closing together with the agreed interest rate.

Have a lawyer to represent you during the closing to make sure that the contract you will be signing is legal and fair. After closing the deal, be aware of your obligations as the borrower and see to it that this time, you will be finishing this loan and get full ownership of your home soon.