If you have had a foreclosure in your past, buying a home becomes a little more complicated, but a foreclosure does not mean you can never become a homeowner. Each type of mortgage has its own set of circumstances and requirements you must meet. Knowing what these are will help you make the right moves as you prepare to buy a home again.
First, before you can pre-qualify for a new mortgage after foreclosure, no matter the mortgage type you are considering, you should expect a higher interest rate and a larger down payment amount requirement. You will also need to have several months’ worth of money set aside in savings. Your Lender wants to see that you have learned from your mistakes. Finally, you will need to establish a positive repayment history with your other types of credit to improve your credit score. Start making the changes now that will put you in a better position later.
FHA Loan Requirements after Foreclosure
An FHA loan, because of its government backing, may be easier to obtain after your foreclosure than another type. However, it has some stipulations you’ll need to know.
First, there is a waiting period. If you have a foreclosure or short sale on your credit history, you will have to wait at least three years before applying for an FHA loan. This time starts at the moment the foreclosure case ends, which is usually the foreclosure sale date or the date the FHA paid their portion of the prior loan if your foreclosure was an FHA loan. Then, you will need a stable credit repayment history and some money in the bank before pre-qualifying.
Conventional Loan Requirements after Foreclosure
If you prefer or need to go the conventional route for your loan, you will need to wait at least seven years if the loan will be a conventional loan that the Lender will sell to Fannie Mae or Freddie Mac. This is quite a long time, so you may wish to shorten it.
To do so, you’ll first need to prove that your foreclosure was due to extenuating circumstances, such as a severe medical event or loss of a job. Then, you will need to show that the maximum loan-to-value ratio is 90 percent or the loan-to-value ratio listed in Fannie Mae’s eligibility matrix. Finally, you must use the loan to purchase your own home, not a second home or investment.
If you are taking out a conventional loan that is not going to be sold to Fannie Mae or Freddie Mac, then the terms are going to vary based on the Lender. It’s common for the Lender to require an extended waiting period and more substantial down payment. Talk to the individual Lender before moving forward.
VA Loans After Foreclosure
The waiting period for a VA loan after a foreclosure is two years. The other requirements do not change. The VA home loan program is known for its zero down payment options, and you will still have that option available to you after foreclosure.
USDA Loans After Foreclosure
Finally, the USDA home loan is an option to consider after foreclosure. The less stringent requirements for this loan, including the minimal down payment requirement, makes it ideal for those working their way out of a foreclosure.
For the USDA home loan program, the waiting period after a foreclosure is three years. You will also need to show that you’ve taken measures to improve your credit and financial situation during those three years. The USDA makes specific exceptions for extenuating circumstances, but a job transfer, divorce, and relocation are not considered extenuating circumstances.
Foreclosure is not an easy process, but it doesn’t mean you can never get a home loan again. With a little bit of patience and some work to improve your credit and financial situation, you can qualify for a home loan again after foreclosure in as little as two years. Be open and honest with the Lenders you’re considering, and take measures to move forward after your foreclosure.