How to Get a Mortgage While in Foreclosure
Getting a mortgage while you are in foreclosure is, traditionally, a difficult transaction to complete. The process involves finding a lender to overlook the fact you haven't made your mortgage payment for quite some time and give you new loan to either refinance your troubled mortgage or to purchase a new home. This type of transaction can be done, however.
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Instructions
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Write letters of explanation. Before you call a lender to apply for a home loan, write detailed letters to prospective underwriters, explaining the circumstances behind your inability to pay your current mortgage. Keep in mind, however, you must have valid reasons such as medical emergencies, death in the family, victimization of fraud or temporary loss of income due to an unforeseen circumstance. Simply forgetting to pay your mortgage and becoming over-extended because of other debts are not valid reasons. Be honest. Some underwriters will ask for a paper trail of proof you experienced legitimate hardship. Write a letter for each of your delinquent accounts.
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Shop for a new lender. Contact a mortgage broker with access to a wide variety lenders. You may get lucky and find a company willing to do extremely risky home loans. Have your letters of explanations handy. Although your chances of approval for a new home loan are slim while in foreclosure, you have nothing to lose by applying.
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Consider a private mortgage. If you are trying to purchase a new home and cannot get a lender to approve you while your current foreclosure is in force, look for homes listed for sale by their owners (FISBOs). Ask sellers if they would be willing to do rent-to-own, or land contract transactions (owner financing). There also may private investors that specialize in owner-financing to sell their properties. These listings are usually listed in newspapers in real estate classified sections or in free real estate guides. Expect to put money down. Although you may not be required to make an extremely large down payment, expect to throw 5 to 10 percent into an owner-financed real estate deal.
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Tips & Warnings
Always make copies of canceled rent or land contract checks. You may need them in the future to prove you've been making your payments on time. Contact a foreclosure avoidance counselor if you run out of options (see Resources).
Do not enter into a land contract or rent-to-own situation for less than 3 years. Because you have a foreclosure, it will take you at least 3 years to rebuild your credit to the point where a lender will refinance your private mortgage to pay off your seller.
