How You Can Refinance After a Deed-in-Lieu of Foreclosure!
A deed in lieu of foreclosure (DIL) allows you voluntarily give the home back to the bank, but it’s important to note that it comes with significant credit consequences that can linger on your credit report for up to seven years. You’ll need to qualify for a new loan if you want to refinance another property, such as an investment property or vacation home. Having a deed in lieu on your record can make getting a loan approval more challenging, but not impossible.
Here are some steps for your deed-in-lieu of foreclosure:
1. Check your credit report and repair any items you are able to. Contact creditors and set up payment arrangements if you need to clear up a delinquent account. If you see any errors or old accounts, file a dispute and provide any supportive letters or documentation to the credit bureau so they are able to launch an investigation. Any information proven to be incorrect will most likely be deleted on your credit reports.
2. Apply for a refinance loan with the home’s current lender. You will need to present other evidence showing you are a worthy loan candidate. You will want to provide the loan officer with a hardship letter that details the circumstances that led to the deed in lieu, in addition to any layoff pink slips or illness documentationproving hardship.Showing cash savings and verified income statements will help bolster your profile. Complete a loan application if you are preapproved. Provide any documentation available for verification; paycheck stubs, W-2s, tax returns and bank statements.
3. Look for a lender that is participating in the federal government’s Home Affordable Modification Program, HAMP, or Home Affordable Refinance Program, HARP. You may qualify for a HARP loan modification if you have a conventional loan guaranteed by Fannie Mae or Freddie Mac. You may qualify for a HAMP loan modification if your current loan is insured by FHA, VA or USDA.
4. Prepare your home for the appraisal such as replacing broken windows or cracked tiles and improve curb appeal by planting flowers and clearing out debris. If your loan officer approves your refinance loan, she’ll order an appraisal as a final step. Provide the appraiser with a list of the upgrades or additions made to the property.
Pay your current mortgage on time and try to avoid making late payments for at least 12 months prior to applying. The impact of a DIL diminishes over time.