A home repossession, or foreclosure, is one of the most traumatic financial events that you will ever endure. Nonetheless, it is possible to recover and move forward, improving your credit along the way. In most cases you must leave the home, and surrender possession to the bank or mortgage company. After the foreclosure is over, you can proceed with rebuilding your credit, so that someday you may have the opportunity to purchase a home again.
Increase Savings
You should begin increasing your savings when it becomes apparent that you cannot pay your mortgage payment, and your home will be repossessed. You will need to move, and finding a new place to live will cost money. Often, you will have a few months before the foreclosure takes place to live in the home without payments, and this should allow you to save for a security deposit on a rental. Landlords often look at potential tenants with foreclosures on their credit report as a higher risk, and may require you to prepay several months rent.
Cash for Keys
As part of the Making Homes Affordable program that was passed into law in 2009, the US treasury is offering homeowners who are unable to afford their homes a "Cash for Keys" program. If a borrower gives the bank a quit claim deed in stead of foreclosure, or works with the lender to complete a short sale, they may receive a check from the treasury for up to $1,500 if they leave the home in broom clean condition. The treasury will also give up to $1,000 to the lenders as an incentive to complete a short sale.
Get Current
Once the home repossession is behind you, it is time to work to get all of your credit accounts current, and keep them paid on time each month. This is necessary before you can rebuild your credit. Pull a copy of your credit report and make sure that all of your accounts are reporting accurately. You can get a free copy from each agency from the Annual Credit Report website once per year.
Build Positive History
As you move forward beyond your repossession and foreclosure, you will need to build a positive credit history. Keep any credit card accounts that you still have open at a reasonable balance, preferably less than 30 percent of the available credit line. Don't apply for new credit unless you really need it, as too many inquiries into your credit report can reduce your credit score. Closing older accounts can also harm your credit score, so keep older accounts that have no fees open, even if you do not use them.
Making Homes Affordable
If you want to keep your home and are able to make reduced mortgage payments, check with the Making Homes Affordable program through the federal government. The program may be able to help you obtain a more stable loan at a lower, fixed interest rate, and a considerably reduced payment. If you will not be able to keep your home, the program may help you make a graceful exit from your home without foreclosure. You must meet some guidelines, such as the mortgage must be on your primary residence and your mortgage must be less than $729,750.
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