How soon can you buy a home after foreclosure.
If you have experienced a foreclosure in the recent years, as many homeowners have, you may be surprised to find out you can buy a home sooner than you thought.
The Lawhead Team came across a great article from Realtor.com discussing when you can apply for a mortgage after you have gone through a foreclosure.
A foreclosure can be a big blow to your desire to own your own home. After all, you worked hard to buy your home only to see it taken away from you. You may think you will never again be in a position to buy another one. However, while your credit score will indeed be affected by a foreclosure, it may only be a matter of time before you can once again apply for a mortgage. It all depends on the circumstances of the foreclosure, the foreclosure waiting period, your ability to increase your credit score and the type of loan that you are prepared to apply for.
Seven years: The standard waiting period for buying a home after a foreclosure is seven years. This is the period required by Fannie Mae, a federally chartered corporation that purchases a significant number of American mortgages. However, even then, you are likely only to be successful in your mortgage application if you have re-established your credit score after the foreclosure. While a record of your foreclosure will only remain on your credit report for seven years, your new lender will want to ensure that you are not a high-risk candidate for a loan.
There are a number of ways to increase your credit score. If, after the foreclosure, you will be renting a property, find a place that falls within your means. This will help you to save money for a down payment on a new home. It may also be worthwhile to obtain a secure credit card, where you make a deposit to the card’s issuer and the credit limit is tied to that amount. Paying off your purchases on the card will reflect well on you when you apply for a mortgage.
Lenders also take note of a borrower’s employment status. It is therefore to your advantage to find steady employment. The longer you remain on a job when applying for a loan, the greater are your chances of being approved.
Three years: If the foreclosure was the result of documented extenuating circumstances, the Fannie Mae waiting period will only be three years, rather than seven, before you can apply for another mortgage.
Extenuating circumstances are non-recurring events that are beyond your control that resulted in a sudden, significant and prolonged reduction in income, or a catastrophic increase in your financial obligations.
If your foreclosure was caused by such circumstances, you will need documentation supporting your claim in order to apply for a mortgage after three years. Documents could include those that confirm the event, such as a copy of a divorce decree, medical bills and job severance papers. Other types of documents that you could produce include those showing your inability to resolve the problems that caused the event, such as insurance papers or tax returns.
Straight away: If you are prepared to meet their conditions, some lenders that do not sell their mortgages to Fannie Mae may be prepared to loan you funds soon after a foreclosure.
These lenders likely will require large down payments and high interest rates. Depending on your financial situation, you might need to lower your expectations in terms of what type of home you are looking to buy. A smaller home may, for example, mean that you will need to borrow less, thereby increasing your chances of obtaining a loan and reducing the amount that you will need to repay.
However, the longer you wait before applying for another mortgage, the more time you will have to re-establish your credit score, which could lead to loans with more favorable conditions.