What life is like after foreclosure

These days, record-breaking foreclosure statistics are coming out with numbing frequency. But what happens to the thousands of families after their personal financial disaster is added to the mounting national count?

Unfortunately, once a foreclosure is final, the financial and emotional upheaval is far from over.

While there's considerable pain, most foreclosure victims will eventually become homeowners again, says Jay Zagorsky, a research scientist at Ohio State University.

Still, that won't happen anytime soon, especially since mortgage rule maker Fannie Mae has recently lengthened the time that must lapse between a foreclosure and approval for a new mortgage.

Here's a look at the issues foreclosed families grapple with, and some smart solutions.

The immediate problem is obvious: where and how to find a new place to live.

Lack of cash for a rental deposit is probably the biggest barrier to foreclosed owners getting re-established on their own. Landlords will sometimes accept tenants who have a credit score of just 580, says Maurice Ortiz, marketing director at The Apartment People in Chicago.

But if landlords look beyond a numerical score to credit records, a foreclosure may spook them, since it indicates the potential tenant hasn't paid his housing bills, adds Ortiz. If the foreclosure can be explained, however, and if the rental candidate has a solid job history, he may be accepted.

Moreover, "if you're on the edge, you may have to double your deposit," says Mark Fogelman, president of Memphis-based Fogelman Management Group.

Scraping together a rental deposit isn't easy for cash-strapped foreclosed owners.

"That's why I recommend that people try to make plans as soon as they think foreclosure (is inevitable)," says Patricia Lynch, a corporate trainer with ClearPoint Financial Solutions in Richmond, Va. Anyone who has a FHA-insured loan who's being foreclosed on should investigate the "cash for keys" program, whereby they get a check for up to $1,000 if they voluntarily vacate and leave their home "broom clean," says Lynch.

Once owners default on their mortgage, other creditors consider it much more likely they won't collect what they're owed either.

"Credit cards have a 'default' rate, and (foreclosed owners) could see their interest rate jump to very high levels -- as much as 30 percent," says John Ulzheimer, president of consumer education for credit.com. "You'll also have a hard time getting a decent car loan," he adds.

If a foreclosure is an isolated event on an otherwise good credit record, consumers may be able to rehabilitate their record and garner better loans and card rates in 24 months, says Ulzheimer.

But since a foreclosure is rarely the former owner's only credit slip-up, and foreclosures are often combined with the fallout of punishing rates, some former homeowners will never climb back up to a good credit score, Ulzheimer says.

Obtaining another mortgage will also be difficult. Fannie Mae has just upped the length of time it takes from the completion of a foreclosure sale until the borrower can get a new mortgage from four years to five years.

The extra year is designed to deter what Fannie Mae believes are borrowers who have made reckless debt decisions. But foreclosed owners who can explain that extenuating circumstances -- typically situations beyond someone's control, like a job loss -- are the impetus for the foreclosure must wait only three years.

Perhaps the best option for obtaining a mortgage after foreclosure is with a federally insured FHA loan, says Jerry DuPaw Jr., a McHenry, Ill., mortgage loan officer.

The minimum time between the completion of foreclosure until when you can be approved for an FHA loan is three years -- whether or not there are extenuating circumstances. Still, FHA borrowers will have to show that they've been practicing good bill-paying habits since the foreclosure.

Should you lose your job as well as your home, your new job hunt shouldn't be hindered by the subject of your foreclosure coming up in job interviews -- unless you're applying for a job in which you handle money.

"We recommend that employers do credit checks when they are concerned about how financially responsible someone is -- which may be for any money-related position from a cashier to an accountant," says Robin Throckmorton, a Loveland, Ohio, human resources consultant.

The federal Fair Credit Reporting Act has rules employers must follow, such as notifying the applicant of the credit check, and most companies limit checks so as not to run afoul of the law.

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Mortgage rates were mixed, with fixed rates falling for a third week in a row and adjustables rising for the second week in a row. The average 30-year fixed-rate mortgage fell 5 basis points, to 6.55 percent. A basis point is one-hundredth of a percentage point.

The average 15-year fixed -- a popular option for refinancing -- fell 5 basis points, to 6.09 percent. The average jumbo 30-year fixed fell 9 basis points, to 7.52 percent. The one-year adjustable-rate mortgage rose 15 basis points, to 6.43 percent. The popular 5/1 ARM rose 2 basis points, to 6.29 percent.

Distributed by Scripps Howard News Service. E-mail Marilyn Kennedy Melia at editors(at)bankrate.com

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