Article by Mortgage Guru
Foreclosure can be one of the most painful financial experiences for any customer. Not only do you lose your home in foreclosure, but it can have a long-lasting impact on your credit rating. It is always advisable that you do all you can to avoid foreclosure as much as possible because foreclosure is a serious situation with serious repercussions such as derogatory information on your credit report. The recession of recent years has resulted in great financial hardship for thousands of Americans and this has unfortunately given rise to an alarming increase in the incidents of foreclosures. While this has resulted in a lot of pain for the thousands of people who have been affected, many people have resorted to options such as deed-in-lieu of foreclosure in order to avoid foreclosure.
While through a deed-in-lieu of foreclosure you would be able to avoid a foreclosure, this is never an option for those who are looking for ways to save their home. This is because in this process, the home must be moved out of. In the deed-in-lieu of foreclosure process, the homeowner gives the deed of the house to the lender who in return agrees not to pursue legal court ordered foreclosure proceedings. The deed is turned over to the lender once the parties have completed a written agreement that details the terms and conditions. If you are wondering what this deed is, it is a publicly recorded document that states who owns the property in question. So when you offer a deed in lieu of foreclosure, it means that you as homeowner will voluntarily sign over the deed to the lender giving them the ownership of your house.
Even though you would be able to avoid a foreclosure through a deed-in-lieu of foreclosure, it would definitely have a negative affect on your credit, although a bit lesser than having a home foreclosure on your credit report. Although you gave the deed back willingly, it would still signify that you couldn’t make your payments and the lender had to come after you. Also, by the time the lender will accept the deed in lieu of foreclosure, you would have missed several payments, and the damage would have been done.
As mentioned earlier, both the options would have a negative impact on your credit and getting mortgage after foreclosure or deed-in-lieu of foreclosure can be quite difficult if not impossible. You would need to be well-versed with the steps in buying a home after foreclosure if you want to increase the chances of approval. The good thing is that it is possible to rise from a bad credit situation. It is advisable that you consider the following when applying for a mortgage after having gone through a foreclosure:
Remember that foreclosure can have a huge negative impact on your credit
In addition to the stigma that is associated with foreclosure, you may also have to deal with the fact that it is difficult to obtain any type of credit, especially a home loan immediately following a foreclosure. Yet, since many factors contribute to the inability to repay a mortgage loan, you may still be able to afford a new home loan even after experiencing a foreclosure. Your experience with foreclosure (or near foreclosure such as a situation where you were forced to go for deed-in-lieu of foreclosure in order to avoid a foreclosure) might have been due to loss of employment, but you may be able to handle a new mortgage after you have found a new job. While your affordability may be your part of the story, in order to convince the lenders about this, you must make sure that you have rebuilt your credit before you apply for a mortgage.
Make sure that your debts with your existing creditors have been taken care of
Since rebuilding your credit after experiencing foreclosure is so important in order to get approved for new loans, you must make sure that you pay your other bills and creditors on time. Any late/ skipped payments will cause further damage to your credit rating.
Shop around for mortgage lenders who are willing to lend to high risk customers
When applying for a mortgage loan after a foreclosure, many traditional lenders will not approve a loan request. But there are lenders out there who specialize in lending to high risk borrowers who have a difficult time securing financing. It may therefore, be a good idea for you to shop for such lenders as an alternative.
There can be various creative ways to avoid foreclosure besides a deed in lieu. It may be well worth the time to investigate these options before you decide to give the deed back. It is important that before taking your decision, you consider all your options that can keep you in your home and salvage your credit.
