Getting into a new mortgage after losing a home may be difficult, but not impossible. Find out what you'll need to buy your next house and make it last.
The housing crisis, and its consequent credit crisis, has affected virtually every family in this country; Hispanics have particularly taken a substantial financial hit. According to the Pew Research Center, the average equity on a Hispanic-owned home dropped to $49,145 in 2009 from nearly $100,000 four years prior. The burst of the housing bubble added to massive job layoffs led to a nationwide financial disaster. By 2009, the average wealth of Hispanics dropped 66% compared to the 16% drop suffered by whites and 53% by blacks.
With these questions in mind we approached CNN financial commentator and Yahoo! Finanzas columnist Xavier Serbia to find out how to deal with a foreclosure and what steps you can take to restore your credit after losing a home.
What is a foreclosure and why did it happen to me?
"A foreclosure happens when you cannot pay what you promised to pay when you bought your home," says Serbia. "When a bank or mortgage institution lends you the money to buy a house, you live in it, but the institution has a lien on the property. If you don't pay, the bank recovers [or takes back] the property."
Buying again after a foreclosure
When you have a foreclosure in your credit history it becomes harder to buy a home again. "It decreases your points towards buying the property, and it sends the message to the lender that you have problems paying back what you owe," says Serbia. The good news is that you may not have to wait too long to buy again. According to Serbia, many financial institutions nowadays are willing to lend money after only one or two years of having a foreclosure in your credit history, with a few even lending after six months. There are conditions that must be met, though. Banks are looking closely into your income (are you making more money now than when you owned your previous home?), your assets (especially how much money you have in savings), and your overall credit history (other than your mortgage, were you able to pay your bills?).
Still, Serbia recommends owners of foreclosed properties ask themselves a few questions before they buy again:
- · What did I do wrong? What mistakes did I make?
- · What did I learn?
- · How can I change my behavior?
Make sure to write down your answers on a piece of paper, and reflect seriously about your financial habits before attempting to get your next mortgage.
Stopping and carefully weighing your home buying options, giving yourself time to rebuild your credit, income and assets will ensure that the next time you buy a house it results in a stable and gratifying experience.
Puerto Rican financial expert Xavier Serbia is a commentator for CNN Dinero, a blogger for Yahoo! Finanzas and best-selling author of "Four Steps to Wealth". For more information visit http://www.xavierserbia.com/
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