As of August of last year; the Federal Housing Administration (FHA) has offered a new mortgage option for families who have faced extenuating circumstances. Back to Work mortgage lenders allow families who have faced foreclosure, bankruptcy, short sale and other significant economic events to apply for a new loan only 12 months after losing a home. During that waiting period, there is much that can be done to better prepare families for a new mortgage.
1. Raise your credit score
Although it’s easier said than done, raising your credit score could make a significant difference in whether a lender will consider you a “good risk.” For lending agencies, the more creditworthy you are, the more likely you will be able to make payments on time. The Back to Work home loan does not allow credit scores below 500. To ensure you will be accepted, setup payment reminders in your online banking system. A text message or e-mail will remind you when upcoming bills are due. You could also consider setting up automatic payments, which will debit payments straight out of your account on the date you wish. Paying bills on time is the most contributing factor in boosting your credit score. Decreasing how much debt you owe is another important factor. Create a payment plan in which you pay off your highest-interest cards first, while continuing to maintain minimum balances on your other accounts.
2. Attend housing counseling
The Federal Housing Administration requires borrowers to participate in at least one hour of housing counseling. This must be completed a minimum of 30 days but no more than six months prior to submitting a new mortgage application. Although borrowers typically frown upon counselors, it can be an enlightening and empowering experience to learn how to take control of your financial life. Counselors teach borrowers how to become better prepared for future financial shocks and how to avoid scams, among many other insightful topics. The FHA requires counselors to address the cause of a family’s economic event. The agency must be approved by the U.S. Department of Housing and Urban Development. A list of participating agencies can be found at www.hud.gov.
3. Assess your budget
Determining how much money you can spend each month on mortgage payments is an important step before a family begins home shopping. Begin by making a budget, listing different household categories and how much they cost each month. Items like food, car insurance, gas, Internet, cell phones and childcare should all be included. Small purchases, like birthday gifts and movie tickets, can add up quickly if you are not budgeting how much is being spent. Each time you make a purchase, add it into a written spreadsheet or excel file to keep track. Subtract all of your monthly expenses from your monthly income to determine what kind of a mortgage you can afford. Don’t forget to leave money for savings, too.
