But, I thought you
couldn’t buy a home after a foreclosure?
Not true! But that is a very common misconception today. Although it is more difficult to qualify for
a mortgage after a foreclosure, it is not impossible. Depending on the type of mortgage you have, there
are different guidelines and waiting periods.
Let’s take a look at the guidelines for the two most popular financing
options – FHA and Conventional Mortgages.
FHA Mortgages
FHA is more forgiving than conventional loans when it comes
to a past foreclosure, short sale, or deed in lieu of foreclosure (as it is
with most credit issues). IN order to
get a new FHA mortgage:
1. At least three years have to elapse from the time
of the foreclosure before you apply for a new FHA mortgage. Borrowers are not eligible for FHA financing
until three years after the foreclosures unless there are documentable
extenuating circumstances such as the death of a wage earner or an extended
illness. The borrower must provide
documentation regarding the extenuating circumstance and prove that this was the
reason for the foreclosure, short sale or deed in lieu of foreclosure. Divorce is not an extenuating circumstance
nor is the inability to sell a previous home when you move to a new home.
2. You will need to improve your credit to meet the
minimum standards of FHA and the lender you are applying with. Obviously, your credit scores will take a
massive hit in these instances. But, you
can start to rebuild your credit immediately by paying your other bills on
time, reducing your debt, etc. FHA has
set minimum credit scores but most lenders require higher credit scores than
FHA – especially for boomerang buyers.
3. You will need a letter of explanation outlining what
happened to cause the financial situation, what has changed since then, and why
it will not happen again. An underwriter
has to be comfortable that the new FHA mortgage will not suffer the same fate
as the last mortgage you had. If you
have documentation backing up the factors that lead to this situation make sure
you provide it along with the explanation.
Conventional Mortgages
When applying for a conventional mortgage, #2 and #3 will still apply. But the length of time you have to wait varies depending on how large your down payment is. If your down payment is 20% of the sales price or more, you would only have to wait 2 years. If you down payment was less than 20% but greater than or equal to 10%, you will have to wait 4 years. And, if your down payment is less than 10%, you will have to wait 7 years.
Regardless of the type of financing you pursue for your new home purchase, you have to convince the underwriter that you take your financial obligations seriously and that you were not just taking advantage of a declining real estate market. Also, whichever type of financing you choose for your new home purchase, be prepared to provide as much documentation as possible and to explain the situation that led to the foreclosures, short sale, or deed in lieu of foreclosure. Be prepared for the processing and underwriting of your mortgage application to take a little longer and face more scrutiny than you last mortgage application.
Make sure you contact me well in advance of your new home purchase. With 20 years of experience I can better prepare you for your upcoming home purchase with more time to get everything in line to present to the underwriter. And, a pre-approval is a must in this situation – there would be nothing worse than to find the home of your dreams only to find out that you are not yet ready to buy again.
Please contact me at BarkerLoans@gmail.com or 708.473.7688 with any questions you have about obtaining a mortgage for a home purchase or refinance.
