Buying A Home After Foreclosure. Find Out If You Qualify Today!
There's a common misconception out there that if you’ve gone through a foreclosure, you won't be able to qualify for 7 years or more to buy a home again. This is not true. What is true is that a foreclosure can make it difficult to secure a home loan, but in reality, it's challenging for anyone to get a home loan these days, whether you have a foreclosure in your past or not.
The good news is that a previous foreclosure does not make it impossible for you to get a new home loan. In most states, buying after foreclosure means re-establishing your credit rating and waiting a certain period of time before applying for a mortgage. The length of time that you need to wait varies depending on the home loan you are seeking, but with a little patience and hard work to improve your credit standing, you can obtain a home loan after a foreclosure in as little as one day after!
Buying a Home After Foreclosure
Millions of homeowners went through foreclosure in the past decade. Sky-high housing prices combined with a financial downturn forced many homeowners to give up their properties. We are finally moving past those difficult times. Home values have bottomed out and mortgage rates remain low, making it a perfect time for those with foreclosures in their pasts to apply for a new mortgage.
To obtain a home loan after foreclosure you'll need to re-establish your credit rating, have some money in savings, and be able to provide a down payment….at a minimum. Lenders will also look at your employment history and other debt obligations as they evaluate your application and ability to repay the loan.
Improving Your Credit Score To Qualify For A Mortgage After Foreclosure
A foreclosure has a huge impact on your credit score; it's not uncommon to see scores drop by 100 points or more, even if you have good credit otherwise. Credit scores are one of the biggest factors that a lender will use to determine if you qualify for a mortgage or not. Getting your scores in shape should be your number one goal.
You can improve your credit score by:
- Checking your credit report. Always check your credit report for inaccuracies that may be affecting your credit score. You are entitled to a free credit report from Equifax, Experian, or TransUnion every 12 months. Use that free report to make sure your information is current and accurate.
- Saving money every month. Not only will you need a down payment for your new home, a strict savings plan will demonstrate your commitment to improving your finances. The more you have saved, the more you can put down on the home, and the less risk you pose to the lender. Depending on the type of loan, anywhere from 3.5%-25% down will be necessary.
- Paying all bills on time. Don't miss a payment on any bills and don't be late paying them. Even if you only pay the minimum amount required, pay it on time. You're trying to re-establish a credit history, remember. That takes time and the lender will look over the past several months or years of your payment histories to see how well you've been doing. A missed or late payment will look worse than a minimum payment that was paid on time.
- Not maxing out credit cards. High amounts of unsecured debt, like credit cards, are a red flag for lenders. They want to lend money to buyers who are most likely to repay it. If you have high amounts of other debt, that decreases your ability to repay the mortgage in lenders' eyes. In fact, this affects 30% of your credit score number.
- Not taking on a lot of new debt after a foreclosure. Similar to maxing out the credit cards, more debt equates to high-risk from the lender's perspective. Even if you know you can handle a mortgage payment plus your other debt obligations, the lender will take a much more strict, black-and-white view of the situation. Many programs require you to fit into a tight debt to income ratio. Some lenders allow for exceptions above the maximum limit so check with one of our licensed loan officers to see if you qualify.
- Still taking on some debt. It's a balance game. On the one hand you don't want to have too much debt, but on the other hand lenders will want to see that you can repay your debt responsibly. Depending on your situation, an auto loan or secured credit card with a small balance can be a smart way to demonstrate your repayment abilities during the waiting period.
"How Long After Foreclosure Can I Buy a House?"
It's one of the most common questions would-be buyers have. The truth of the matter is, there is no easy answer. It all depends on the type of loan you are trying to obtain and the state of your finances. Each type of loan has a waiting period, but you may find yourself waiting longer than the minimum number of years required for each loan if your finances are lacking.
Your choices, and the wait requirements, for a mortgage after foreclosure include:
- FHA Loan After Foreclosure. It is possible to qualify for an FHA loan just 1-3 years after a foreclosure. In most cases, the wait is 3 years, but if your foreclosure was the result of an "economic event" that was out of your control you may be able to get a loan in as little as 1 year after the foreclosure. Examples of a qualified economic event include a job loss or medical emergency that reduced your income by 20% for more than 6 months. You will still need to have good credit to qualify for a loan.
- Portfolio Loan After Foreclosure. It is possible to qualify for a portfolio loan the day after foreclosure or short sale. This loan program requires a minimum of 20% down and credit score of at least 620. You will have to be able to prove your ability to repay the loan with tax returns or bank statements. Rates are slightly higher on this program but there is no waiting period!
- Jumbo Loan After Foreclosure. There is no specific waiting period for jumbo loans, which range from $350,000-$5,000,000, but they are tough to qualify for and are evaluated on a case-by-case basis. One of the biggest factors in securing a jumbo loan is the amount you can put down. At a minimum you'll need to put 10% down but to do so, you'll also need to have 20% pledged assets or cross-collateralization. If you do not have these assets, you'll need to provide 30% down. If you want an interest-only loan, you'll need to put 40% down. You will need a minimum credit score of 620 to qualify for a jumbo loan.
- Conventional Loan After Foreclosure. Conventional loans backed by Fannie Mae or Freddie Mac have the longest waiting period - as long as 7 years from the time of the foreclosure. However, that wait time can be reduced if you provide a large enough down payment. Down payments of 20% or more can reduce the wait time to just 2 years, compared to the 7-year wait for down payments of less than 10%.
- VA Loan After Foreclosure. The wait period for a VA Loan after foreclosure is just 2 years. These loans are backed by the Department of Veterans Affairs and are only available to qualified Veterans or spouses of U.S. Veterans or active-duty military personnel. There are no down payment requirements, however you will still need to have a credit score of 550 or higher and a debt-to-income ratio of 55% or lower to qualify.
Home Loans After Short Sales or Bankruptcy
Buying a home after a short sale or a bankruptcy is another challenge. Again, your personal circumstances will determine how soon after these events you can apply for a new home loan, but it is possible to qualify for a mortgage after both short sales and bankruptcies.
Short Sale. Short sales are less of a black mark against you than bankruptcy. If you sold your home as a short sale, you may be able to get a new loan after just one year. But, again, the final wait time depends on the type of loan you apply for.
FHA Loans are very common after a short sale, likely because they are one of the easiest to get for most homebuyers and require less wait time than conventional loans. The typical wait period for FHA loans is 3 years, requires a 3.5% down payment, and a minimum credit score of 580. You will also have to pay both upfront and monthly mortgage insurance.
Conventional Loans after a short sale are dependent on the amount of money you put down and can be as little as 2 years. A 20% down payment will help you avoid paying mortgage insurance but is not necessarily required in order to qualify for a loan. As little as 5% down, plus mortgage insurance, can secure you a conventional home loan, but you'll wait longer than 2 years in order to qualify, perhaps as long as 7 years.
VA Loan requirements after a short sale are only 2 years, offer 100% financing, no required mortgage insurance and a FICO score of 550 or better. However, these loans are only available to active duty military personnel and Veterans.
- Bankruptcy. Bankruptcy is a different matter. Bankruptcy severely impacts your credit rating and shuts down your ability to borrow money. You will need to re-build your credit and have your bankruptcy discharged before you'll even be considered for a home loan. How long this takes depends on you and your ability to repay loans, save money, and establish new credit. Once the bankruptcy has been discharged, you can apply for a home loan, but you might want to wait awhile. If you wait even as little as 24 months after the discharge has been approved, you can obtain better terms and interest rates. When applying for a home loan after bankruptcy, it helps to go in with as big a down payment as you can manage, a good debt-to-income ratio, and a strong repayment history.
Find Out If You Qualify For A Home Loan Right Now!
If this all makes your head spin, you're not alone. Mortgage and home loan requirements are strict at the best of times in California, Colorado, Florida, and Texas. Buying after foreclosure is even more challenging and it can be confusing to know whether or not you'll even qualify. Thankfully you are in good hands because this is what we do best!
We've eliminated some of the confusion with our online qualification questionnaire. Simply fill out the 4-step questionnaire and find out:
- If you are eligible for a home loan,
- If you can apply for a loan now or need to wait longer, and
- What type of home loan you are qualified for.
Upon completion of our pass-fail test you'll receive a free report outlining the steps you need to take to secure a home loan after a foreclosure.
Use the form on this page to get started right now or click here to go to the qualification questionnaire and see if you qualify.