Getting pre-approved for a new mortgage after a foreclosure:
If you are like many of the millions of people who have gone through foreclosure during the last 5 years, you may be thinking about purchasing a home again. After going through foreclosure you may have thought it would be a seven year wait to buy again, however that may not be the case. Depending upon your credit or your willingness to work on your credit, the wait can be as little as just 2-3 years or sooner with documented “extenuated circumstances”.
Many websites and loan officers will tell you that the standard waiting period to buy a house after foreclosure is seven years. This is a very generalized answer and needs to be looked closely at because it has discouraged many from attempting to buy again after foreclosure.
Fannie Mae, a federally chartered private corporation that purchases a vast number of American mortgages had a 7 year rule. However, in 2010, Fannie’s new created new standards for applicants after foreclosure and short sale. These new guidelines come with some significant fine print. To qualify for a new loan in the minimum two years, borrowers with decent credit scores will need to come up with a 20% downpayment or more. If you don’t have 20%, then Fannie Mae will require a four-year minimum waiting period or longer. There are strict credit score requirements as well. It is vital that you re-establish your credit after foreclosure. To do so, you will need to have a few new credit lines with new payment history to show that you have the credit worthiness to buy again. The record of your foreclosure will still remain on your credit report for seven years, however with re-established credit, a minimum credit score of 680 and a 20% downpayment, you may be approved to buy again in just 2 years.
There are many ways to increase your credit score. One way is to obtain a secure credit card, where you make a deposit to the creditor and the credit limit is tied to that amount. Using this card, by making purchases and paying it off on time, will increase your credit score and show you have the ability to repay your loan.
One of the most important factors in purchasing a home again after foreclosure is employment. Lenders now more than ever rely heavily on your ability to prove income and your employment history. The longer you have been employed at the same job, the better. Also staying within the same line of work is key.
FHA the Federal Housing Administration has guidelines for a mortgage after foreclosure as well. These guidelines tend to be more lenient on downpayment as well as credit score. The credit score requirement for FHA after foreclosure is just 620.
With a downpayment of at least 3.5% you may be able to purchase a home again in as little as 3 years after a foreclosure. Re-established credit and solid employment is also extremely important to getting approved for a FHA loan.
There may be an exception to the 3 year waiting period if the borrower can document “extenuating circumstances” See excerpt taken directly from HUD 4155.1 FHA Mortgage credit analysis:
Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.
Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower’s loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.
Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.
Immediately after foreclosure?
There are some private money lenders that are willing to lend to you immediately after foreclosure or short sale. These hard money lenders generally require 30%-40% down and come with high interest rates and fees. If you are determined to buy again right after foreclosure and cannot pay entirely in cash, this may be your only option. One strategy would be to purchase with a private money loan and refinance once your 2 year waiting period has passed. However this still will be costly so make sure you look closely at the terms of the private money lender.