Randy McCreith, Principal Broker

How to Listen to Bad News

There is a lot of bad news about the housing industry and the economy right now, and has been for the last 3 years. Ignoring it or hiding from it is of no benefit to anyone. However, there are serious flaws with the delivery of it, the interpretation of it, and the application of it that need to be addressed. Here is what I have learned:

• ·      The Usual Suspects: Almost all of the news about the housing market is about a few, and the worst markets in the nation. Florida’s housing market, after a great run tanked many years ago because of numerous hurricanes and has remained decimated to this date. Most of the large housing markets in California are legendary for their regular wild, roller coaster swings. Ridiculous and irrational high prices are followed by gut-wrenching correctional lows, and this cycle has gone on for decades. Las Vegas was the speculation capital of the nation, and when the music stopped, there were a great many empty houses and defaulting owners who should have remained renters. Phoenix, the younger sister of Las Vegas, has imitated her sibling on a slightly smaller scale. The mind-boggling volatility in these markets makes them the fodder of much discussion and the source of most news stories. Notice also that these markets are all in the Sunbelt.

• ·      Ubiquitous Bad News: There is always a down economy somewhere and wherever it is the reporters will soon be on hand to floodlight it for the rest of us. When oil and gas are flying high, so are the housing markets in Colorado, Texas, and Oklahoma; but when not, their whole economy struggles, including the housing market. That is when we hear about them. Manufacturing areas, for example Michigan and Ohio, currently have problems with in an increasingly global economy and so their markets are down. They get a lot of attention, especially in election years. Good markets rarely make the news except as a minor statistic in someone’s list ranking all the bad news areas.

• ·      “If it bleeds, it leads”. The news media by nature is part of the sales and entertainment industries. They must sell advertising and subscriptions or they have no business viability. They also must attract and retain a great many eyes or they are out of business. They also must cut costs and consolidate functions to stay on top like any other commercial enterprise.

To do so they need the shocking headlines, and the graphic pictures, and unbelievable stories. It is not a well-hidden fact that news stories for TV are often selected because of the most graphic and sensational video. Additionally, fear has always sold best. Stories of impending threats and imminent danger are the most powerful at capturing and retaining the public. Think about 911 and how everyone spent all available time watching the news. If the public’s attention is fixed, then the value of advertising is greater and demand for services is higher. Nothing is more powerful than people all across the nation standing around water coolers talking about the latest news which we should be worried about.

• ·      The Badness about Bigness: Although ‘bigness’ in anything has some pronounced benefits, rarely are the benefits quality, or attention to detail. Think about the big box stores for home improvement. We love the fact that they have just about everything, except enough competent sales associates! Massive media conglomerations produce generic, pre-digested news, usually with a national and international focus. The wire services collect news stories, synthesize them, summarize them, and feed them, almost as sound bites, to all the local markets to keep their news machines churning.  National media companies buy out most of the local outlets and push their news downstream to be disseminated at the local level as if these stories represent the reality everywhere. Don’t believe it!

• ·      Journalism is Anemic if not diseased. Were there really days when journalists researched stories in depth with a critical eye? Were there times when journalists became acutely knowledgeable about specific industries and well-versed in local conditions? Has there truly been a time when information was delivered to us without editorial bias and sensational hooks?

If so, these are bygone days. Today, the media seems to have more of a vision for social engineering and political change than for disseminating objective, unbiased truth. If they are not in the pockets of politicians or commercial interests then they are serving some philosophical ideal which will produce human utopian. I just want the news! That is the data and facts in an accurate context. Given that, then we can pursue solutions through critical thinking as people vie to understand the reality and which solutions are most reasonable.

• ·      What Year is it anyway? To listen to the news today you would think we are in The Second Great American Depression. The truth is that we have almost nothing in common with the Great Depression of 1929 and this it is an outrageous claim that our time is similar. We can scarcely compare our situation with the late 1970s and early 1980s when mortgage interest rates were 21%, unemployment nationally was almost 13% and inflation hit a high of 13.5%. Does anyone remember the Savings and Loan crisis of the late 80s’? That has more in common with the current banking troubles than the depression (more on this silly comparison at a later time).

The reality of the housing industry is that almost all detailed comparisons locally tend to go to back to 2003, or a couple of years in the early 1990’s. Among the usual suspect areas it is worse, but by no means the depression. Our current valuations are still up almost 50% in last five years and we have just reached the levels of only two years ago even though we have been hit with a sub-prime crisis, unprecedented oil prices, a meltdown of the financial sector, and a deep recession with increasing job losses. I am not saying it cannot get worse but it has a very long way to go to match what some of our grandparents lived through.

• ·      Is Everyone in Foreclosure? In high speculation areas even in Oregon, like Bend and Happy Valley in Clackamas, there are too many foreclosures. Developers and Builders, who were trying to keep up with an expanding market, also got hit very hard and many have been forced into Chapter 11 Bankruptcy to renegotiate debt. But what about the local market? We have very few foreclosed upon homes which are bank owned (REO). This is growing not because of so much corruption or excess in our area but because sales were paralyzed, time and recession has drained us, and job loss cripples more and more people.

What you are not being told is that ‘foreclosure’ as used in the media includes everyone who is over 30 days late on their mortgage payment. Technically they are in default and on the road to the auctioning their property for missed payments and penalties. Most people correct the deficiency in the 6 month process to auction, and many others sell the home to satisfy the debt. Very few end up on the auction block. What about ALL the notices in the newspaper? They are required to print public notice 4 times before they can conclude the foreclosure process so they really represent 25% of those in trouble, some of these will never end up in auction. In February of 2009, Yamhill County still had a foreclosure rate of just over 1%; less than the normal national average. However, our rate of foreclosure had skyrocketed! From few to a few more. Statistics lie, when someone wants to use them for ‘shock and awe’.

There is hope and help. The internet, although the greatest tool for mis-information in the history of the human race, offers you the ability to go wherever you want, and drill deep into any industry you want, to find in-depth, critical analysis, of news from a variety of sources.

For housing you can relatively easily research the local markets. Do not look to the news outlets. Look to the industry professionals. Listen to people on the street who live in this industry day to day and year to year. Every industry has its gurus who study history and current conditions; that eclectically, but critically, learn from those who lead the industry.

Consider the source and then ask your local Bella Casa Realtor®, mortgage broker, title company, and local bankers for the reality. The news media moguls, they never come here except to tour wineries!

Article by G.M. Filisko
Published by HouseLogic.com

By doing your homework before you buy, you’ll feel more content about your new home.

1. Decide how much home you can afford

Generally, you can afford a home priced 2 to 3 times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2. Develop your home wish list

Be honest about which features you must have and which you’d like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top-five must-haves and top-five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. Select where you want to live

Make a list of your top-five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4. Start saving

Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. A small downpayment preserves your savings for emergencies.

However, the lower your downpayment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can get.

Finally, if your downpayment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and downpayment assistance programs for first-time buyers.

5. Ask about all the costs before you sign

A downpayment is just one homebuying cost. Your REALTOR® can tell you what other costs buyers commonly pay in your area—including home inspections, attorneys’ fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. Get your credit in order

A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 620 for a home mortgage.

You’re entitled to free copies of your credit reports annually from the major credit bureaus:Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7. Get prequalified

Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.

The NATIONAL ASSOCIATION OF REALTORS® Code of Ethics

How does our Code of Ethics affect everyday real estate practices? If a REALTOR® represents you, whether you are buying or selling a home, you can count on that REALTOR® to:

1. Be honest with all parties in the transaction – not just with you, as his or her client, but also with the other real estate practitioner and his or her clients.

For example, if REALTORS® represent a buyer with a spotty credit history, they can’t be dishonest with sellers about this fact. At the same time, REALTORS® can help their buyer clients collect and assemble information, such as credit reports and audited tax returns, to demonstrate that the buyer has addressed the problem and improved their situation.

2. Put your interests ahead of his or her own, at all times.

A REALTOR® makes every effort to understand the housing needs of his or her client, thoroughly researches available inventory, and shares all relevant information with the buyer so that he or she can make an informed decision. This service is provided regardless of the compensation available.

3. Disclose all pertinent facts regarding the property and the transaction to both buyer and seller.

If a REALTOR® believes information provided by a seller is questionable, the REALTOR® is obligated to investigate. REALTORS® should recommend that buyers consult their own experts, such as home inspectors, to address concerns. For example, if a home seller asks his or her REALTOR® to conceal the fact that the roof leaks, the REALTOR® cannot comply; if the seller insists, the REALTOR® should end the business relationship with that seller.

4. Be truthful in all communications with the public.

When REALTORS® distribute newsletters, create Web sites, or place advertisements, they must be careful not to represent other real estate professionals’ work product as their own. If recently sold or listed properties in the community are publicized, it must be clear whether the REALTOR® was actually involved in the transaction, or whether that data came from the local multiple listing service or other source. This ensures that the public understands the REALTOR®’s experience and can make an informed decision when choosing real estate representation.

Read a summary of the principles embodied in the NATIONAL ASSOCIATION OF REALTORS®’ Code of Ethics. PDF

Get an “A” on your Schedule A Form: Dodge these tax deduction pitfalls to save time, money, and an IRS investigation.

Schedule A (http://www.irs.gov/pub/irs-pdf/f1040sa.pdf) is the part of Form 1040 you use to list myriad deductions, and the more moving parts, the more prone you are to misinterpretation. To save you heartache, we asked four tax experts to weigh in on the six most common Schedule A mistakes do-it-yourselfers make.

Trap #1: Line 6 – real estate taxes

Your monthly mortgage payment often includes money for a tax escrow, from which the lender pays your local real estate taxes.

The money you send the bank may be more than what the bank pays for your taxes, says Julian Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax Savings. That will lead you to putting the wrong number on Schedule A.

Example:

• Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes

• Your annual property tax bill: $5,500

Now do the math:

• Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.

• Instead, take the number from Form 1098—which your bank sends you each year—that shows the actual taxes paid.

Trap #2: Line 6 – tax calculations for recent buyers and sellers

If you bought or sold a home in the middle of 2010, figuring out what to put on line 6 of your Schedule A Form is tricky.

Don’t simply enter the number from your property tax bill on line 6 as you would if you owned the house the whole year. If you bought or sold a house in midyear, you should instead use the property tax amount listed on your HUD-1 closing statement, says Phil Marti, a retired IRS official.

Here’s why: Generally, depending on the local tax cycle, either the seller gives the buyer money to pay the taxes when they come due or, if the seller has already paid taxes, the buyer reimburses the seller at closing. Those taxes are deductible that year, but won’t be reflected on your property tax bill.

Trap #3: Line 10 – properly deducting points

You can deduct points paid on a refinance, but not all at once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you deduct them over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct only $100 per year on your Schedule A Form.

Trap #4: Line 10 – HELOC limits

If you took out a home equity line of credit (HELOC), you can generally deduct the interest on it only up to $100,000 of debt each year, says Matthew Lender, a CPA with EisnerLubin LLP.

For example, if you have a HELOC for $200,000, the bank will send you Form 1098 for interest paid on $200,000. But you can deduct only the interest paid on $100,000. If you just pull the number off Form 1098, you’ll deduct more than you’re entitled to.

Trap #5: line 13 – Private mortgage insurance

You can deduct PMI on your Schedule A Form, as long as you started paying the insurance after Dec. 31, 2006. (Also, this is also a good time to review your PMI: You might be able to cancel your PMI altogether because you’ve had a change in loan-to-value status.)

Trap #6: line 20 – casualty and theft losses

You can deduct part or all of losses caused by theft, vandalism, fire, or similar causes, as well as corrosive drywall, but the process isn’t always obvious or simple:

• Only deduct losses that are greater than 10% of your adjusted gross income (line 38 of Form 1040).

• Fill out Form 4684, which involves complex calculations for the cost basis and fair market value.  This form gives you the number you need for line 20.

Bottom line on line 20: If you’ve got extensive losses, it’s best to consult a tax pro. “I wouldn’t do it myself, and I’ve been dealing with taxes for 40 years,” says former IRS official Marti.

Barbara Eisner Bayer has written about personal finance for the past 17 years. She works hard to translate IRSese into plain English. She has unbounded respect for CPAs.

Article From HouseLogic.com, Published: October 14, 2010

Buying a house, refinancing it, getting a loan, getting a job—they’re all dependent on your FICO credit score. It pays to learn how it’s calculated.

How are FICO credit scores computed?

FICO uses five broad categories to calculate credit scores, and each category is weighted accordingly:

Why are there three FICO credit scores?

There are three main bureaus that collect data on your credit history: Equifax, Experian, and TransUnion. FICO takes data from each credit bureau and runs it through its system. This leads to three different FICO credit scores because:

• Each agency may have information one or both of the others don’t have. For example, a collection agency may have reported a bad debt to only one of them.

• Errors that occur just in one agency’s data may affect that agency’s results, but not the results from the other two.

And to make it even more complex, many lenders augment their credit decisions by adding particular criteria they want to consider.

Also, although FICO is the best-known credit score, there are many others. Some lenders generate their own credit scores using data from the same three credit bureaus. Experian, in fact, has developed its own scoring system separate from FICO.

However, FICO remains the most common; when big lenders refer to your credit scores, they’re usually referring to the FICO scores.

Why can a credit check by itself reduce a FICO credit score?

FICO’s research shows that more credit shopping, resulting in more inquiries, correlates with a higher risk of future default. However, multiple queries in a short period for one purpose—such as when you’re shopping for a HELOC—would count as only one inquiry.

The FICO score ignores any mortgage, student loan, or auto loan inquiries made within the previous 30 days. The system limits itself to inquiries made in the 11 months before that, and reduces similar inquires within any 45-day window to a single inquiry. For example, if you approach five banks over two weeks on a HELOC, it will only count as one inquiry.

The inquiry formulas can get rather complex; the FICO site has more details.

How long does major negative information stay on my credit report?

Generally, the impact of adverse information on a FICO score lessens over time.

How does loan modification affect my FICO credit score?

Until November 2009, if you were in a loan modification program, your credit report likely notes that you have made only a partial payment. This significantly lowered your FICO score.
However, in modifications made since November 2009, the credit reporting system was changed to reduce the credit score hit. But as of October 2010 FICO hadn’t completely bought into this system and may at some point decide that everyone in a loan modification program, whether under new or old rules, deserves a significantly lower score.

For now, your best bet is to obtain your free credit reports, as noted later in this article, and see how your particular situation was reported and handled.

Do reductions in credit card or HELOC limits affect my credit score?

The impact will be unique for each consumer. The FICO formula considers many aspects of your balances and behaviors, including whether you have a high percentage of available credit at the time the report was pulled.

For example, if you have high debt and use a substantial proportion of your available credit, you’re at a greater risk. Opening a new credit card to increase available credit, after another card was reduced, may backfire and reduce your credit score.

Do lenders have to tell me if they’re basing a quote on my bad credit score?

New regulations taking effect in 2011 require lenders to tell you if they’re giving you a particularly high interest rate or other less favorable loan term than other borrowers who qualify for the best deals. In the past, the lenders may not have told you that you were getting an especially high rate—you were penalized without knowing it.

Starting in January, you’ll be forewarned.

Then if your credit score is lower than you expected, you can investigate it—maybe it’s just an outdated report or a simple mix-up. At least you’ll know the deal before signing on the dotted line.

But don’t wait until you apply for a loan to discover your credit is a mess. By law, you can get a free report from each agency once a year at Annualcreditreport.com. (And no, this isn’t the company advertising with the slacker band on TV.) This is the only site authorized by the Federal Trade Commission to provide free reports.

However, these reports don’t include your FICO scores. You can purchase TransUnion and Equifax FICO scores from MyFico.com for $15.95 each. (Experian continues to provide a FICO score to lenders but no longer sells its score on a retail basis.)  Some consumers will qualify for free FICO scores starting in mid-2011 or early 2012.

1. Walk the property and see the home in person. It takes ‘boots on the ground’ reconnaissance to make smart decisions. One cannot even begin the research until this has been accomplished.
2. Know the comparable areas. Two towns located in the same county will have considerable differences in value because of numerous tangible and intangible differences. This goes for neighborhoods as well.
3. Compare the property with genuine comparable properties. Two statistically identical homes will be dramatically different in price because of location alone, and there are always other considerations as well.
4. Compare sales which occurred in the same market conditions. Appraisers prefer ‘comps’ to be no older than 3 months, almost never more than 6 months. It does little good to see properties which sold last year unless you have a depth of knowledge to properly extrapolate value.
5. Compare with actual sales in the free market. Distressed sales which are the result of foreclosure, or closed sales within a family, do not reflect the actual market price. They distort the value and need to be eliminated from consideration.

Many of the problems we now suffer from (the sub-prime mortgage mess, rabid speculation and non-existent standards) are tied to the fact that in-person appraisals were not performed. Instead, lenders relied on automated valuations to support their loan programs.

We have a saying that the listing agent begins as a hero in the eyes of the seller (great expectations!), but it goes downhill from there, sometimes way down because the end result is less than the dream.  On the other hand, a buyer’s agent, begins at a disadvantage without trust from the buyers, but in the end achieves a dream for the buyers, and so ends the transaction as a hero.

While it is good to interview more than one Realtor®, sometimes the competition to win the client can cause the promise of price to be overstated. Learn more about establishing value and ask your Realtor® to show you the data to support their claim.

Points are up-front fees paid to obtain a better interest rate on a loan. One point equals one percent of the loan amount. A lower interest rate may result in a lower monthly payment, but it is important to consider how long you intend to be in the loan, and to compare current rates to historical market trends.

If you take out a $300,000 mortgage and decide to pay one point, this translates into an up-front closing cost of $3,000. Paying a point up front saves $100 a month but it will take 30 months to recuperate the cost of that point. If you decide to refinance or sell the home before the 30-month mark, your money is lost. In this case, you would benefit financially by remaining in the home longer than the 30 months.

Rates run in cycles. When rates are at historical lows, it is sensible to pay points if you plan to live in the home for an extended period of time. It is unlikely that rates will go down; hence, there will be no need to refinance.

When rates are up, there is a strong likelihood that they will come down. This is no time to pay points. The chances of refinancing in the future are extremely high, and you will likely not be in the loan long enough to recuperate the cost of the points.

Mortgage Interest Rates for Fixed Rate Mortgages

Rates as of Monday, December 27th, 2010

*Rates are subject to change due to the market fluctuations and borrower’s eligibility. ML 137 NMLS 269195

Travis Newton
Sr Mortgage Banker
Preferred Mortgage
Phone: 503-931-4490
Fax: (503) 779-1234
License: 269195
travis@pmforegon.com

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: September 01, 2010

Homebuyer incentives can be smart marketing or a waste of money. Find out when and how to use them.

Be sure you’re sending the right message to buyers when you throw in a homebuyer incentive to encourage them to purchase your home. When you’re selling your home, the idea of adding a sweetener to the transaction-whether it’s a decorating allowance, a home warranty, or a big-screen TV-can be a smart use of marketing funds. To ensure it’s not a big waste, follow these dos and don’ts:

Do use homebuyer incentives to set your home apart from close competition. If all the sale properties in your neighborhood have the same patio, furnishing yours with a luxury patio set and stainless steel BBQ that stay with the buyers will make your home stand out.

Do compensate for flaws with a homebuyer incentive. If your kitchen sports outdated floral wallpaper, a $3,000 decorating allowance may help buyers cope. If your furnace is aging, a home warranty may remove the buyers’ concern that they’ll have to pay thousands of dollars to replace it right after the closing.

Don’t assume homebuyer incentives are legal. Your state may ban homebuyer incentives, or its laws may be maddeningly confusing about when the practice is legal and not. Check with your real estate agent and attorney before you offer a homebuyer incentive.

Don’t think buyers won’t see the motivation behind a homebuyer incentive. Offering a homebuyer incentive may make you seem desperate. That may lead suspicious buyers to wonder what hidden flaws exist in your home that would force you to throw a freebie at them to get it sold. It could also lead buyers to factor in your apparent anxiety and make a lowball offer.

Don’t use a homebuyer incentive to mask a too-high price. A buyer may think your expensive homebuyer incentive-like a high-end TV or a luxury car-is a gimmick to avoid lowering your sale price. Many top real estate agents will tell you to list your home at a more competitive price instead of offering a homebuyer incentive. A property that’s priced a hair below its true value will attract not only buyers but also buyers’ agents, who’ll be giddy to show their clients a home that’s a good value and will sell quickly.

If you’re convinced a homebuyer incentive will do the trick, choose one that adds value or neutralizes a flaw in your home. Addressing buyers’ concerns about your home will always be more effective than offering buyers an expensive toy.

More from HouseLogic

Other web resources

More on homebuyer incentives

G.M. Filisko is an attorney and award-winning writer who gritted her teeth and chose a huge price decrease over an incentive to sell a languishing property-and is glad she did. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Article From HouseLogic.com

By: Barbara Eisner Bayer
Published: July 08, 2010

Foreclosure is just a one-time event–with discipline and perseverance, you can get a mortgage and become a homeowner again.

It won’t be easy to obtain a mortgage after foreclosure. But with enough time, discipline, and desire, you can own your own home again. Here’s what you need to do:

1. Stick with a job after foreclosure

Did you fall into foreclosure because of the lack of a steady job? If you did, the first step toward homeownership after foreclosure is finding and holding one. And if you already have one–stick with it, unless you can move to a better one. Note that potential lenders will require stable employment before they’ll give you a new mortgage loan after a foreclosure. Even if it means taking a lower-paying job, it’s worth it.

2. Rebuild your nest egg after foreclosure

Establish a safety net. Financial planners generally recommend three to six months of living expenses in a liquid account, but since you’re coming out of foreclosure, six is a minimum to show stability and that you’re able to pay your bills–including your mortgage–for an extended period if you lose your job.

3. Raise your credit score after foreclosure

This is the hardest and most time-consuming part. After foreclosure, your credit score, according to myFICO (http://www.myfico.com/Default.aspx), probably dropped by about 150 points. You’ll need to raise it back up with perseverance.

Pay bills on time and keep your credit card balances below maximum levels. The foreclosure will stay on your credit report for seven years, but if you prove your money management skills have matured, it will become less of a red mark as years go by.

Tip: Consult a housing counselor. The U.S. Department of Housing and Urban Development (http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm) offers free housing counseling for distressed homeowners with a foreclosure in their past. A counselor can help you with money management and budgeting. Counseling works–an evaluation of a program in Indianapolis discovered that credit scores greatly improved because of education and counseling, and increased average borrowing power by $4,500 per family.

4. Reduce your waiting time for a mortgage after foreclosure

Normally, you would have to wait seven years after foreclosure before you can apply for a new mortgage under Fannie Mae (http://www.houselogic.com/articles/how-fannie-mae-and-freddie-mac-save-you-money/) rules. (Fannie Mae changes rules frequently. You can check the latest rules (https://www.efanniemae.com/sf/guides/ssg/sgpdf.jsp) at Fannie Mae’s site.)

However, you might wait only three years if you can show extenuating circumstances for your foreclosure, which are defined as “events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” These include:

•Losing a job

•Getting divorced

•Having unexpected medical expenses

There’s one last alternative if waiting isn’t your thing–you can obtain seller financing, essentially bypassing the traditional mortgage. If both parties are amenable, you can enter into a lease with an option to buy, or take a mortgage directly from the seller. You’ll most likely have to show some hefty reserve funds, but if you’ve turned around your financial situation quickly after your foreclosure, it’s worth a shot to deal directly with the seller.

Keep in mind that sellers may be motivated to agree to this if they need to sell and the potential buyers they’ve met with can’t obtain a conventional mortgage–perhaps because they’ve been through foreclosures, too.

5. Be honest about your foreclosure

When you’re ready to apply for your new mortgage, don’t try to hide your foreclosure. On the contrary, be proactive and reveal the steps you’ve taken to remedy the problems that led to your foreclosure.

Tip: Try a mortgage broker, who can work with a variety of lenders to find you a loan. When you work directly with a retail lender, like a bank, they have a limited pool of loans to offer you. But a good mortgage broker–one with a vast network of lendersóhas many options, and may be able to find a mortgage solution if the foreclosure in your past is creating challenges in obtaining one.

If you stay disciplined and positive, the American dream–obtaining a mortgage and owning a home of your own–can, indeed, be yours again. Even after foreclosure.
Barbara Eisner Bayer has written about mortgages and personal finance for the past 16 years for the Motley Fool, the Daily Plan-It, and Nursevillage.com, and has been the Managing Editor for CompleteGrowth.com, Mortgageloan.com, and Credit-land.com. She’s grateful that she now knows where to turn if she ever struggles to meet her mortgage payment.