Rebuilding credit hard, but doable


There's hope for home ownership after foreclosure.

"Its really rebuilding your credit and saving, is what it amounts to," said Viki Hettinger, a mortgage consultant with Wintrust Mortgage in Crystal Lake. "Rebuild your credit, save your money, and you can purchase your new home."

According to the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, a foreclosure can impact credit for as long as seven years, but owning a home again is still possible.

"There are folks that were early on in this process that maybe lost a home to foreclosure or gave it back and they're starting to ask the question ... 'Can I ever buy a home again?' " said Greg Grojean, senior vice president of Home State Bank. "The answer is yes."

The mortgage industry first looks at the nature of the financial issue, such as whether there was a bankruptcy, foreclosure, or a deed-in-lieu of foreclosure.

"What's the big picture?" Grojean said. "What happened to their last home?"

From there, it's broken down to two categories: extenuating circumstances and financial mismanagement.

Extenuating circumstances include death of a wage earner or prolonged unemployment. Financial mismanagement may mean too much money was borrowed, running up high credit card bills, or buying an expensive car and not being able to make the payments.

"Somebody with extenuating circumstances could buy a home in as little as two years, depending on what it is," Grojean said.

It could also take as much as seven years, he said.

"Can you afford it? Have you reset your credit history? Has your credit score gone back up?" Grojean said. "There are a lot of things that could impact that."

The first step Grojean recommends to homebuying post-foreclosure is being patient.

"Your financial situation evolved over time, and it's going to take time to get everything back in order," he said.

Second, get a credit report and check it for accuracy, including removing old items.

"You may have started out in a foreclosure, but end up doing a deed-in-lieu of foreclosure," Grojean said. "Those have two different ratings that are scored differently."

Credit scores are key to a lot of qualifying today, he said, and the No. 1 way to impact them is to pay bills on time.

"Most lenders have a minimum credit score for people who have had financial problems in the past," Grojean said. "That minimum score tends to be in the 620 to 640 range, but that number is not absolute."

Next, Grojean suggests meeting with a loan officer, even if the day to buy a home isn't today. Loan officers know what kinds of programs are available for assistance with down payments, for example, and will look at the circumstances to make sure a housing payment is affordable.

"One trick is if you're paying a low rent today ... put the difference between the current payment and what you're proposing to borrow into the bank every month," he said.

The people at Consumer Credit Counseling also can help with budgeting.

Homebuying after foreclosure takes time, but it can be done, Grojean said.

Borrowers who have gone through foreclosure need to be prepared to document the situation and explain why it's not going to happen again.

"You're not going to have your home foreclosed upon today and go out and buy another home tomorrow," he said. "You're going to have to show your lender that you learned your lesson and that you're in a much better position to manage your credit today."