Life after foreclosure is difficult, especially because foreclosure badly hurts your credit. It is often very difficult to buy a new home and obtain a new mortgage loan.(Actually, before continuing, I have a bit of a confession. I've never been through a foreclosure. This page was paid content in a previous life. Some of the original text remains, but the links to the advertiser's sites have been removed. Rather than reward you with an error page by just taking things down — since it's likely you arrived here through a search engine — I've left it up and added what I can to provide you with good information. Hope that's fair. 😉 )
During the first two years of a foreclosure, it will be difficult to be approved for a mortgage loan. The foreclosure could have precipitated for reasons beyond your control (illness or injury that took a lot of money to treat, for example) but your credit history will have a black mark nonetheless if you've been foreclosed on.
However, all is not lost. Not being able to get a mortgage loan is a blessing in disguise. You can begin credit score damage repair that will drastically increase your chances of being approved for a loan later down the road. This is also an excellent time to begin (or continue) saving up an emergency fund, putting away for retirement, paying down other debts, and saving for a down payment on a home.
If you'd like to read more about how real people reducing debt, then check out the archives of the Carnival of Debt Reduction. This is a weekly blog carnival (a weekly collection of links to posts) that deal with debt reduction stories and debt reduction help. If you still have debt, this is a great place to get practical advice. There are several hundred posts — maybe closer to a thousand actually — dealing with this topic.
You can begin improving your bad credit score by ensuring that you pay all of your bills on time and work to negotiate lower interest rates on your credit cards. By doing this you will rebuild a good payment history that makes all the difference when it comes to being approved for a loan at a rate you can easily afford. At the same time, you will want to set up a budget that you can live with. The budget will need to include a lot of savings — first for an emergency fund, then for retirement, then lastly for a down payment on a house.
Even though you're saving for a down payment, please be careful getting into a house again. If you're in an area that still hasn't “deflated its housing bubble” yet, then please be extra careful. Lenders may approve you more conservatively (that is, for less money) now than they did a few years ago, but there's no guarantee that they still won't approve you for more than you can afford. They will do this because (a) it puts more money in their pocket and (b) you'll sacrifice other things before you let your mortgage payments lapse.
Buying too much house is probably what put you in a precarious position before: You had too little breathing room in your budget. Give yourself a lot of breathing room this time. Aim to have your mortgage, taxes, and insurance comprise 25% or less of your take-home pay. The less, the better.
(I hope you found this useful. If you did, then feel free to poke around the site and subscribe to my feed if you like what you see! Additionally, for current information and commentary on foreclosure, you can check out another blog of mine, Living After Foreclosure.)