Kait Thompson knows a thing or two about life after foreclosure. Put simply, it’s tough.
Once a home is lost in foreclosure — as is happening to many Coloradans in the current mortgage crisis — everything for the former homeowner requiring credit gets harder, said the housing counselor for the nonprofit housing advising group Brothers Redevelopment.
“Your credit is pretty much in a low position,” Thompson said.
With botched credit, obtaining everything from credit cards to a place to rent to an auto loan becomes nearly impossible, financial experts said.
“You’re looked at as a huge liability,” said Thompson, who also works for the Colorado Foreclosure Hotline.
That forces many individuals and families to make difficult decisions about where to live and how to get back on their feet.
“I have had some people who lived in the national parks,” Thompson said about some of her clients who moved to the mountains and lived in tents and cars.
While Thompson, like the rest of her colleagues, has encountered numerous tales of woe, financial and housing experts said all is not lost. Foreclosed-upon homeowners can take certain steps to ease their transitions and, with time, their credit can be repaired.
First things first, say housing counselors.
Upon losing a home, people need to get a roof over their heads. For many, that means leaning on family or friends who can provide a place to live.
Moving into rental housing can also be an option, but with a foreclosure on a credit record, it can be difficult to get a rental application approved.
For someone who has lost a job or has had a job for only a few months, it can get even more difficult.
“You think ‘Geez, it could be a disaster waiting to happen,’ ” said John Dunn, owner of Dunn and Co. LLC, a Denver property management firm.
Even so, there are things that can be done to overcome a foreclosure on one’s record, Dunn said. First, an applicant can find a co-signer for the lease. Also, an applicant’s deposit can be increased. Lastly, landlords can look much closer at an applicant’s special situation to see what brought on the problems.
“If you see a bankruptcy or foreclosure on a credit check, you need to figure out what’s going on,” said Dunn, who notes that he has had many people with foreclosures on their record who’ve applied recently for rentals. “We look closely at their job, the situation that caused their foreclosure, or something like that. ”
It also helps to seek financial counseling.
After a client has gone through foreclosure, Thompson said counselors like her can help them develop a financial plan and provide a letter of recommendation to attach, along with the financial plan, to the rental application.
“That can help,” Dunn said. “If you see that someone has taken steps to correct the issues, that is something that we will look at.”
Once a person has a roof to live under, consumers may then wonder whether they will ever be able to qualify for a home loan again.
“Once a customer does go through foreclosure, they will be able to obtain a home loan in the future,” said Andrew Dosher, manager of the Denver region of U.S. Bank’s home mortgage division. “It really will depend on the amount of time since foreclosure and how their credit has been since the foreclosure. Really, time is going to heal it.”
For government-backed loans, like those from the Federal Housing Administration and Fannie Mae, the waiting period is usually at least three years, Dosher said.
“They like to see good credit throughout those years,” Dosher said. “Letters of explanation are good and will be taken into consideration. There are also other factors, such as the ability to repay the loan.
One thing people should not do is become so-called cash-only consumers, said Dosher.
“They need to re-establish that credit,” Dosher said. “Sometimes you have the urge to go straight to all cash. I would advocate starting to establish new credit.”
That can be done with a credit card where consumers might have to pay a higher interest rate, Dosher said.
Tips for getting back on your feet after a foreclosure
HOUSING
Consider temporarily moving in with family or friends.
If you’re trying to get into rental housing, it helps to have someone co-sign your application.
Some landlords may be willing to work with you if you’re willing to pay a higher deposit up front.
Work with a financial counselor, who can write a letter on your behalf and help you put together a financial plan, which can also be included in the rental application. This shows a potential landlord you’re serious about getting your finances back in order.
REBUILDING CREDIT
Don’t become a cash-only customer.
Work to rebuild your credit by maintaining a low-limit credit card. It will likely have a higher interest rate, but if you use it sparingly and pay it off monthly, you’ll go a long way toward rebuilding your credit.
Don’t despair. You’ll eventually be able to get a new mortgage, but it will be at least three years if not longer before that will become an option.
