A lot of people have wrongly misinterpreted the issue of buying a house after foreclosure. According to them, a person who has gone through a foreclosure will be unable to qualify for seven years or more to purchase a mortgage loan.
This is not correct. The truth of the matter is that a foreclosure can bring some difficulties in securing a mortgage, however, in reality, it is challenging to get loan these days either you previously have a foreclosure or not.
A previous foreclosure does not mean you can never get a new loan again. What is obtainable in most states is that when you go through foreclosure, you will establish your credit rating and wait for specified period of time prior to mortgage application.
The type of loan you seek will determine the length of time that you will require to wait. With hard work and a little patience, you can obtain a home loan after foreclosure.
Millions of homeowners have gone through foreclosure since ten years back. Extremely high housing prices, coupled with financial downturn have forced many home owners to give up their properties. Those difficult times are getting over as the value of homes has increased with low mortgage rates. This now enables people with foreclosures in their past to apply for a new mortgage.
To obtain a home after foreclosure, you will need to establish your credit rating, save some money and provide a down payment. Remember that your credit score drops significantly after a foreclosure. Your employment history and other debt obligations will also be considered by lenders.
Several people have been able to purchase a home after foreclosure. Often times, you have to wait for enough time to pass, for you to get qualified for a new mortgage.
Getting qualified for a new mortgage is not a day’s job. Below are tips to consider to enable you re-qualify for a mortgage loan after foreclosure.
🏘What is the Value of my Home?
🏬Be patient 2 to 7 years
A foreclose halts a mortgage application, but never prevents you from being a home owner. This is a seasoning period to wait prior to your eligibility to qualify for a new mortgage application.
Federal Housing Administration loan requires three years for borrowers to wait, while conventional loans require 7 years waiting period after foreclosure. There is no seasoning period required for the Department of Veterans Affairs; however, most VA lenders consider you for mortgage after two years.
You can qualify for FHA mortgage just after two years and a conventional loan after three years, provided you can prove that the reason behind foreclosure is due to “extenuating circumstances.” This is a one-time unexpected situation that negatively affects your finances, and leaves you with no option but to lose your loan payment. Instances of these circumstances are death, severe illness of a wage earner, divorce and job loss. Discuss your situation with a mortgage lender to confirm if you can qualify sooner as a result of these circumstances.
🏥Improve your credit rating
Foreclose are derogatory events therefore there are capable of wiping more than 100 points of a credit score.
It is a fact that every lender desire to see very good credit score rating prior to your mortgage qualification. The FHA requires a minimum score of 500 or 580 with a 3.5% down payment. Bad credit is actually fixable. Ensure you use this opportunity to pay off all your debt, make prompt bill payment and maintain low credit card balance. With a good payment history, a positive impart can be made on your FICO score even within two years after foreclosure.
🏬Increase your down payment
A lot of home buyers qualify for mortgage loans with ease due to low down payment mortgages. While an FHA mortgage requires 3.5% down payment, a conventional mortgage requires 5% down payment, though first time buyers may qualify with 3.5% down payment if they have a higher credit score. It is unfortunate that a previous foreclose hampers your chances of securing a mortgage with a low down payment. Although, this does not imply depositing the conventional 20% down payment, but you will be required to pay more cash. Majority of the mortgage lenders require a minimum of 10% down payment in addition to closing costs which is up to 5% of the mortgage balance. For instance, if you are purchasing a $300,000 property, hence that is $30,000 for a down payment and up to $15,000 in closing costs.
🏥Let your landlord report rent payment
Many renters are ignorant of the fact that rent payment can build or re-build their credit history. Many landlords have not been reporting rent payments to the credit bureaus. It is possible for a renter to make on time monthly payment for many years without getting this positive history reflected in his credit card. As renting remains the only option after foreclosure, endeavor to rent a home from a landlord who report payment to Experian Rent Bureau.
🏘Various loans you can qualify for after foreclosure
The type of loan you are qualified for will determine how long you can buy a house after foreclosure. This loan has a waiting period. If your finances are in poor shape and you can find yourself waiting longer than the minimum required time frame.
Below are your choices and wait requirement for a mortgage after foreclosure.
i. FHA loans after foreclosure
You can qualify for an FHA loan within one to three years after foreclosure.
The waiting period is mostly three years after foreclosure. However, if your foreclosure is due to “economic circumstance” which was out of your control and you may consider for the loan within a year.
ii.Portfolio loan after foreclosure
You can qualify for this loan a day after foreclosure.
Requirements are minimum of 20% down payment and 620 credit score or higher. Rates are higher but no waiting period.
🏘What is the Value of my Home?
iii. Jumbo loan after foreclosure
This loan does not require a specific waiting period. It ranges from $350,000 to $5,000,000. Jumbo loans are not easily qualified and are considered on case-by-case basis. Requirements are minimum of 10% down payment and 20% pledge assets or cross-collateralization. If you don’t have the asset, you will make a 3% down payment and a minimum credit score of 620.
iv. Conventional loan after foreclosure
These loans have a waiting period up to 7 years after foreclosure. Large down payment of 20% or more can however reduce the waiting time to two years compared to 10% down payment for 7 years waiting period.
v. VA loan after foreclosure
The waiting period for this loan is 2 years.
VA loans are backed up by the Department of Veterans Affairs. They are available to veterans or spouses of U.S veterans or military in active duty. It requires no down payment, but a minimum credit score of 550 and 55% debt to income ratio.
Follow the tips above to ensure a good working relationship with your agent. Aside from this, also make sure that you hire a reputable real estate company like RL Real Estate Group. With years of experience under their belt, you’re assured of excellent service and a good working relationship all the time. Fill up the contact form here to get started.
If you have any more questions about how to buy a house after foreclosure, contact RL Real Estate at 601-212-8431 or at firstname.lastname@example.org. Regan Laughlin and her team of real estate experts would be more than happy to serve you.