In a Nutshell Show A foreclosure doesn't mean you're banned from buying another home. There are ways to get credit-worthy once you've overcome a foreclosure. No matter what your credit history looks like, you can get a home loan approval even after a foreclosure.
Going through a foreclosure is tough. After dealing with the stress of missing mortgage payments and ultimately being stripped of homeownership, it can be hard to recover. Despite this, you might want to make another home purchase in the future, particularly if mortgage rates are low. Yet it might seem impossible to get any type of loan after you have gone through foreclosure. The good news is that you can purchase a new home even if a bank has foreclosed on you. But you’ll face some restrictions. This piece provides guidance for how to buy a home after foreclosure and deal with any obstacles you may face. Foreclosure Can Make Buying Another Home DifficultForeclosures will usually remain on your credit report for seven years. If you have a foreclosure that’s older than that, it shouldn’t be on your report. But a recent foreclosure, particularly one that occurred only a year or two ago, will complicate the homebuying process. Foreclosures and alternatives like a deed-in-lieu of foreclosure or a short sale will all negatively impact your credit score, but you will still be able to purchase real estate. Still, you will face some obstacles. You will probably need to wait a certain amount of time before a mortgage loan servicer will even consider giving you a mortgage. The length of time you’ll have to wait will depend on the loan servicer and the kind of loan that you’re seeking. Borrowers in this scenario are sometimes called boomerang buyers or borrowers. When dealing with boomerang buyers, mortgage companies want to be sure that the borrower has handled the situation that caused the foreclosure and won’t repeat past mistakes. For example, if a medical emergency caused financial hardship that led to a foreclosure, the bank will want to see that you’ve addressed this and that you have a plan to address any similar issues in the future. Lenders also like to see that you had a solid credit score before the foreclosure and that a one-time emergency is what led to the foreclosure. They’ll also want to see that you’ve built up a strong FICO score since the foreclosure. You can do this by consistently paying off your debt. All of this will help lenders see that you’re currently in a strong financial situation and that you won’t be facing another scenario like the one that caused you to lose your home. Extenuating Circumstances Can Shorten Waiting PeriodsIf you’ve faced certain extenuating situations, you may be eligible to apply for a mortgage after a short waiting period. A circumstance may be considered extenuating if it:
Some examples might be that the primary breadwinner died or someone in your family faced a major medical emergency. To qualify, you’ll need to explain your situation and show that it caused the foreclosure. Many things can severely impact your finances, but most won’t qualify as extenuating circumstances. For example, going through a divorce or not being able to sell your real estate may seriously impact your finances, but mortgage loan servicers don’t consider these beyond your control. Ultimately any potential scenario will go before an agent who specializes in loan underwriting. The agent will evaluate the situation and decide whether it meets the criteria for a shorter waiting period. Upsolve User Experiences1,375+ Members Online Misa ★★★★★ 6 months ago It was very easy. They guided me through everything. Read more Google reviews ⇾ Charles Sullivan ★★★★★ 6 months ago I am very pleased with the services,and guidence that Upsolve give me Read more Google reviews ⇾ Cheyenne Neeley ★★★★★ 6 months ago Amazing Read more Google reviews ⇾ Different Loans Have Different Foreclosure Waiting PeriodsBelow are the waiting periods and restrictions for different home loan programs. After you go through the mandatory waiting period, you’ll need to follow the program’s other lending policies. Individual home loan servicers can also put further rules or even longer waiting times in place if they choose. Conventional LoansConventional loans are ones that are backed by Fannie Mae or Freddie Mac. They mandate:
FHA LoansFederal House Administration (FHA) loans have the following requirements:
VA LoansBorrowers dealing with Veterans Affairs (VA) loans, face the following restrictions:
USDA LoansFor those looking to apply for a U.S. Department of Agriculture (USDA) loan, these provisions are in place:
Alternative LendersFinally, if you choose to go through an alternative lender, each will have its own waiting period. Alternative lenders include private loan servicers, lenders that give hard money, and subprime mortgage companies. These lenders typically have a wide range of waiting periods, and some lenders won’t make you wait at all. Not needing to wait for a loan may seem miraculous, but it’s important to note that these loans are often expensive due to higher interest rates, fees, and points, among other issues. Despite these drawbacks, these loans can prove beneficial in helping you rebuild your credit report and FICO score. This can help you refinance later on and get a lower-cost conventional mortgage. Can CAIVRS Prevent You From Getting a New Mortgage?There is an important federal database known as the Credit Alert Verification Reporting System (CAIVRS). The CAIVRS keeps track of individuals who default on any federal loan, be it a student loan or a government-backed home loan. The FHA, VA, or USDA will review the CAIVRS list when you apply for a mortgage with them. If the lender finds that you’re on the list, then it won’t loan to you. To remove yourself from the CAIVRS list for matters concerning student loans, you need to completely resolve the loan. If you have faced foreclosure on a government-backed loan, you have to wait three years to be removed from the list. There are six government departments that submit information to CAIVRS: the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA) and the Department of Justice (DOJ). Let's Summarize…If you have recently gone through foreclosure, it may be more difficult for you to get another home mortgage. Lenders typically require you to wait a particular amount of time before you can apply for another mortgage. The time you have to wait will depend on which loan provider you are dealing with and what kind of loan you seek. If you faced an extenuating circumstance that led to the foreclosure, you can significantly cut this waiting period. Private lenders or subprime mortgage lenders will often have a shorter or no waiting period, but these loans typically cost more. Still, you may be able to get one of these loans, use it to help rebuild your credit, and refinance later. Written By: Attorney Todd Carney Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney |