How to Find a Mortgage After Foreclosure
Wait three years for an FHA loan., Wait seven years for a conventional loan., Wait two years for a VA loan., Check the waiting period for private lenders., Check your credit score., Find an FHA-approved lender., Locate lenders for government-backed...
Step-by-Step Guide
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Step 1: Wait three years for an FHA loan.
You can get a Federal Housing Authority loan from an approved lender, such as a bank.
Generally, you won’t qualify for an FHA loan until three years have passed after your foreclosure.
This means that if you lost your home in June 2015, you won’t qualify for an FHA loan until June
2018.
It’s important to note that the 3-year waiting period starts after the deed to the home is transferred, and not from when the foreclosure starts.
You can find out when your deed was transferred in public records.
If your foreclosure was on an FHA mortgage, you may still be ineligible for FHA financing after the 3-year waiting period.
Ask your lender to check if you have a clear CAIVRS number.
An exception exists if you suffered a significant hardship beyond your control, such as illness, death, divorce, or job loss. -
Step 2: Wait seven years for a conventional loan.
If you apply for a conventional loan that is sold to Fannie Mae or Freddie Mac, the wait time has increased to seven years.
However, you might qualify for an exception, which can lower the waiting period to three years.You can shorten the waiting period if you can prove in writing that extenuating circumstances caused your foreclosure.
Extenuating circumstances are events beyond your control that reduced your income significantly or increased your bills catastrophically.To shorten the wait time, you can only borrow up to a maximum of 90% of the value of the property.
You must use the new mortgage to buy your personal residence.
You cannot use the mortgage to buy a second home or investment property. , Veterans of the U.S.
Armed Forces can qualify for loans guaranteed by the Department of Veterans Affairs (VA).
After a foreclosure, you need to wait two years before you can apply for another VA-backed loan., Some private lenders don’t sell their mortgages to Freddie Mac or Fannie Mae.
Accordingly, they can come up with their own waiting periods.
These lenders will look at a variety of factors when deciding whether to extend a loan, including your credit score, income, assets, and overall debt load.
They will also set their own waiting periods.
Generally, these lenders have waiting periods that last from one day to eight years.You might be able to shorten the waiting period by making a larger down payment or paying a higher interest rate.
It can be difficult to get a loan if it won’t be bought by Fannie Mae or Freddie Mac.
These loans will have substantially higher interest rates and fees. , Your credit score is essential to getting approved for a mortgage after foreclosure.
Even if you wait long enough, you won’t qualify for a mortgage if your score is too low.
Accordingly, you should know your score before you approach a lender.
You can obtain it in the following ways:
Visit a credit counselor or FHA-approved housing counselor.
They can get your credit score.
Look on a recent credit card statement.
It may be listed there.Buy your FICO score from myfico.com.
Be aware that free online service such as CreditKarma or Credit.com use the vantage
3.0 score, which is not what is used in mortgage lending.
They can be off by up to 100 points. , You can’t get an FHA loan from any bank.
Instead, the lender must have been approved by the government.
You can search the list at the Department of Housing and Urban Development (HUD) website.Alternately, you can call around and ask banks in your area if they are FHA-approved. , Technically, neither Fannie Mae nor Freddie Mac make loans directly to the public.
Instead, they will buy loans from banks if the loans qualify.
The VA also doesn’t make loans.
Instead, they guaranty the loan in the event you default.Most banks are happy to provide home mortgages to people who qualify for these programs, so you have a lot of options.
You can shop around at different lenders in your geographic area.
You can also use online aggregators which will compare the rates of local lenders for you – but beware that these rate are usually for the best possible borrower. , If you don’t want to wait for a government-backed loan, then you must find other lenders willing to lend to you.
Search for lenders of “non-Qualified” loans, which is shortened to “non-QM” loans.
There are websites that list lenders.
Some of the largest banks offer these loans, including Chase, Bank of America, Wells Fargo, and U.S.
Bank.
There are also smaller lenders on the lists.
Many mortgage brokers also offer these loans and can help you shop multiple lenders to find the best available terms. , Non-QM loans are generally more expensive than government-backed loans.
Interest rates are higher, so you’ll end up paying more over the life of the loan.Your higher monthly mortgage payment will put an added strain on your budget, which means you have a greater risk of defaulting again.
If the loan is an adjustable rate mortgage, then interest rates could soar in the future, which will dramatically increase your mortgage payment.Both the subprime and non-QM lending industries have an incentive to play down the risks of their loans.
If you don’t need to buy a home immediately, wait until you qualify for a government-backed loan. , Every lender should have a website.
Go online and read whatever information appears on the website.
Some websites will provide extensive information about who qualifies for a loan, whereas other websites will list a phone number or email address to contact for more information. , Your bank might be willing to lend to you.
You should stop in and talk to a loan officer.
They can assess whether you qualify for an FHA, Fannie Mae/Freddie Mac, or VA loan.
If you don’t, it’s unlikely they’ll lend to you.
Nevertheless, you won’t know until you stop in and ask.
A loan officer can review your credit score and let you know if it’s too low.
If it is, you can wait to apply until after you rebuild your credit. , There are plenty of shady lenders out there, and you must perform thorough research before entering a loan agreement.
If you find a lender you like, then check for complaints.
Contact your state’s Attorney General’s office.
This office investigates consumer fraud and prosecutes scammers.
They should have information about whether the lender has been sued.
Visit the Better Business Bureau website.
Look for complaints.
Pay particular attention to complaints that the lender didn’t describe the loan terms clearly.
Watch out for the “bait and switch.” A lender must give you a closing disclosure which lists the loan’s terms.
They must also give you an update if anything changes.
Avoid signing a loan if the lender springs new terms on you at closing.Closing disclosures are not required in many non-QM loans.
You should be especially careful when taking one of these loans. , In addition to waiting periods, lenders also have other requirements before you can qualify for a loan.
Check the following:
FHA.
Your credit score must be at least 520, but usually
580.
If it is higher, then your down payment can be lower.According to guidelines, your debt to income ration shouldn’t exceed 43%.This means that if your monthly income is $4,000, your monthly debt payments cannot be more than $1,720.
However, FHA lenders often write up to 49% DTI for well-qualified borrowers.
Fannie Mae and Freddie Mac.
Your credit score must be 620 for a fixed rate mortgage and 640 for an adjustable rate mortgage.
Your debt-to-income ratio shouldn’t exceed 43% but, again, lenders are often willing to go higher if you’re qualified.VA loans.
You’ll need a credit score of at least 620 to qualify.
Loans not backed by a government program.
Lenders will set their own lending criteria.
Work closely with a loan officer to see if you can qualify. , If you don’t meet the minimum credit score, you’ll need to improve it before you apply.
Remember that there are no quick fixes, and avoid signing up with any business that promises a “new credit profile.” Instead, increase your credit score by doing the following:
Pay all bills on time, every month.Set up email or text message reminders so you don’t forget.
Reduce your total debt, including credit card debt.If necessary, create a budget and funnel all extra cash toward credit card payments.
Avoid applying for new credit cards.
Every application results in a “hard pull,” which can lower your credit score., Sometimes, mistakes in your credit report will lower your score.
Pull a free copy of your credit report and go over all information.
If you find an error, dispute it with the credit bureau.
Common errors include the following:
Accounts that don’t belong to you are listed on your credit history.
For example, someone might have a similar name or Social Security Number.
An account is inaccurately listed as in default.
The wrong credit balance is listed.
For example, you might only owe $500 on a credit card, but the balance is listed as $5,000.
The wrong credit limit is listed.
Your credit card might have a limit of $10,000 but $1,000 is listed.
Accounts in collections show up multiple times on your report.
Remember that foreclosures stay on your credit report for up to seven years., You might need to prove to a lender that you lost your home because of divorce, illness, death, or job loss.
For example, look for the following:
A copy of your divorce decree and marital separation agreement.
Copies of paid medical bills.A death certificate, if you lost income because your spouse died.
A copy of your termination letter, business bankruptcy, unemployment benefits, etc.
Also gather proof of the new job, such as a job offer letter. , You’ll need to submit a letter explaining why you went into foreclosure if you hope to get an FHA or Fannie Mae/Freddie Mac loan before the waiting period expires.
Follow these tips for writing an effective letter:
Format the letter like a standard business letter.
Mention dates.
You need to orientate the loan officer.
Don’t say something like, “When I got sick a few years ago, my bills started to add up.” Give specific dates.
Avoid shifting the blame to other people.
If you lost your home because of financial mismanagement, acknowledge that fact.
Explain how you’ve gotten back on sound financial footing.
For example, you might have started credit counseling or gotten a new job. , The lender will want a thorough financial history of your life after the foreclosure.
Collect the following financial documents:tax returns pay stubs or proof of self-employed income bank statements brokerage statements Credit references like a letter from your landlord or utility company, if you’ve had limited credit since your foreclosure. -
Step 3: Wait two years for a VA loan.
-
Step 4: Check the waiting period for private lenders.
-
Step 5: Check your credit score.
-
Step 6: Find an FHA-approved lender.
-
Step 7: Locate lenders for government-backed loans.
-
Step 8: Look online for other lenders if you can’t wait.
-
Step 9: Understand the risks of loans not backed by the government.
-
Step 10: Research lenders’ websites.
-
Step 11: Stop into your bank.
-
Step 12: Watch out for mortgage scams.
-
Step 13: Check if you meet minimum requirements.
-
Step 14: Rebuild your credit
-
Step 15: if necessary.
-
Step 16: Fix errors in your credit report.
-
Step 17: Gather proof of your hardship.
-
Step 18: Write a letter explaining your hardship.
-
Step 19: Collect financial documents.
Detailed Guide
You can get a Federal Housing Authority loan from an approved lender, such as a bank.
Generally, you won’t qualify for an FHA loan until three years have passed after your foreclosure.
This means that if you lost your home in June 2015, you won’t qualify for an FHA loan until June
2018.
It’s important to note that the 3-year waiting period starts after the deed to the home is transferred, and not from when the foreclosure starts.
You can find out when your deed was transferred in public records.
If your foreclosure was on an FHA mortgage, you may still be ineligible for FHA financing after the 3-year waiting period.
Ask your lender to check if you have a clear CAIVRS number.
An exception exists if you suffered a significant hardship beyond your control, such as illness, death, divorce, or job loss.
If you apply for a conventional loan that is sold to Fannie Mae or Freddie Mac, the wait time has increased to seven years.
However, you might qualify for an exception, which can lower the waiting period to three years.You can shorten the waiting period if you can prove in writing that extenuating circumstances caused your foreclosure.
Extenuating circumstances are events beyond your control that reduced your income significantly or increased your bills catastrophically.To shorten the wait time, you can only borrow up to a maximum of 90% of the value of the property.
You must use the new mortgage to buy your personal residence.
You cannot use the mortgage to buy a second home or investment property. , Veterans of the U.S.
Armed Forces can qualify for loans guaranteed by the Department of Veterans Affairs (VA).
After a foreclosure, you need to wait two years before you can apply for another VA-backed loan., Some private lenders don’t sell their mortgages to Freddie Mac or Fannie Mae.
Accordingly, they can come up with their own waiting periods.
These lenders will look at a variety of factors when deciding whether to extend a loan, including your credit score, income, assets, and overall debt load.
They will also set their own waiting periods.
Generally, these lenders have waiting periods that last from one day to eight years.You might be able to shorten the waiting period by making a larger down payment or paying a higher interest rate.
It can be difficult to get a loan if it won’t be bought by Fannie Mae or Freddie Mac.
These loans will have substantially higher interest rates and fees. , Your credit score is essential to getting approved for a mortgage after foreclosure.
Even if you wait long enough, you won’t qualify for a mortgage if your score is too low.
Accordingly, you should know your score before you approach a lender.
You can obtain it in the following ways:
Visit a credit counselor or FHA-approved housing counselor.
They can get your credit score.
Look on a recent credit card statement.
It may be listed there.Buy your FICO score from myfico.com.
Be aware that free online service such as CreditKarma or Credit.com use the vantage
3.0 score, which is not what is used in mortgage lending.
They can be off by up to 100 points. , You can’t get an FHA loan from any bank.
Instead, the lender must have been approved by the government.
You can search the list at the Department of Housing and Urban Development (HUD) website.Alternately, you can call around and ask banks in your area if they are FHA-approved. , Technically, neither Fannie Mae nor Freddie Mac make loans directly to the public.
Instead, they will buy loans from banks if the loans qualify.
The VA also doesn’t make loans.
Instead, they guaranty the loan in the event you default.Most banks are happy to provide home mortgages to people who qualify for these programs, so you have a lot of options.
You can shop around at different lenders in your geographic area.
You can also use online aggregators which will compare the rates of local lenders for you – but beware that these rate are usually for the best possible borrower. , If you don’t want to wait for a government-backed loan, then you must find other lenders willing to lend to you.
Search for lenders of “non-Qualified” loans, which is shortened to “non-QM” loans.
There are websites that list lenders.
Some of the largest banks offer these loans, including Chase, Bank of America, Wells Fargo, and U.S.
Bank.
There are also smaller lenders on the lists.
Many mortgage brokers also offer these loans and can help you shop multiple lenders to find the best available terms. , Non-QM loans are generally more expensive than government-backed loans.
Interest rates are higher, so you’ll end up paying more over the life of the loan.Your higher monthly mortgage payment will put an added strain on your budget, which means you have a greater risk of defaulting again.
If the loan is an adjustable rate mortgage, then interest rates could soar in the future, which will dramatically increase your mortgage payment.Both the subprime and non-QM lending industries have an incentive to play down the risks of their loans.
If you don’t need to buy a home immediately, wait until you qualify for a government-backed loan. , Every lender should have a website.
Go online and read whatever information appears on the website.
Some websites will provide extensive information about who qualifies for a loan, whereas other websites will list a phone number or email address to contact for more information. , Your bank might be willing to lend to you.
You should stop in and talk to a loan officer.
They can assess whether you qualify for an FHA, Fannie Mae/Freddie Mac, or VA loan.
If you don’t, it’s unlikely they’ll lend to you.
Nevertheless, you won’t know until you stop in and ask.
A loan officer can review your credit score and let you know if it’s too low.
If it is, you can wait to apply until after you rebuild your credit. , There are plenty of shady lenders out there, and you must perform thorough research before entering a loan agreement.
If you find a lender you like, then check for complaints.
Contact your state’s Attorney General’s office.
This office investigates consumer fraud and prosecutes scammers.
They should have information about whether the lender has been sued.
Visit the Better Business Bureau website.
Look for complaints.
Pay particular attention to complaints that the lender didn’t describe the loan terms clearly.
Watch out for the “bait and switch.” A lender must give you a closing disclosure which lists the loan’s terms.
They must also give you an update if anything changes.
Avoid signing a loan if the lender springs new terms on you at closing.Closing disclosures are not required in many non-QM loans.
You should be especially careful when taking one of these loans. , In addition to waiting periods, lenders also have other requirements before you can qualify for a loan.
Check the following:
FHA.
Your credit score must be at least 520, but usually
580.
If it is higher, then your down payment can be lower.According to guidelines, your debt to income ration shouldn’t exceed 43%.This means that if your monthly income is $4,000, your monthly debt payments cannot be more than $1,720.
However, FHA lenders often write up to 49% DTI for well-qualified borrowers.
Fannie Mae and Freddie Mac.
Your credit score must be 620 for a fixed rate mortgage and 640 for an adjustable rate mortgage.
Your debt-to-income ratio shouldn’t exceed 43% but, again, lenders are often willing to go higher if you’re qualified.VA loans.
You’ll need a credit score of at least 620 to qualify.
Loans not backed by a government program.
Lenders will set their own lending criteria.
Work closely with a loan officer to see if you can qualify. , If you don’t meet the minimum credit score, you’ll need to improve it before you apply.
Remember that there are no quick fixes, and avoid signing up with any business that promises a “new credit profile.” Instead, increase your credit score by doing the following:
Pay all bills on time, every month.Set up email or text message reminders so you don’t forget.
Reduce your total debt, including credit card debt.If necessary, create a budget and funnel all extra cash toward credit card payments.
Avoid applying for new credit cards.
Every application results in a “hard pull,” which can lower your credit score., Sometimes, mistakes in your credit report will lower your score.
Pull a free copy of your credit report and go over all information.
If you find an error, dispute it with the credit bureau.
Common errors include the following:
Accounts that don’t belong to you are listed on your credit history.
For example, someone might have a similar name or Social Security Number.
An account is inaccurately listed as in default.
The wrong credit balance is listed.
For example, you might only owe $500 on a credit card, but the balance is listed as $5,000.
The wrong credit limit is listed.
Your credit card might have a limit of $10,000 but $1,000 is listed.
Accounts in collections show up multiple times on your report.
Remember that foreclosures stay on your credit report for up to seven years., You might need to prove to a lender that you lost your home because of divorce, illness, death, or job loss.
For example, look for the following:
A copy of your divorce decree and marital separation agreement.
Copies of paid medical bills.A death certificate, if you lost income because your spouse died.
A copy of your termination letter, business bankruptcy, unemployment benefits, etc.
Also gather proof of the new job, such as a job offer letter. , You’ll need to submit a letter explaining why you went into foreclosure if you hope to get an FHA or Fannie Mae/Freddie Mac loan before the waiting period expires.
Follow these tips for writing an effective letter:
Format the letter like a standard business letter.
Mention dates.
You need to orientate the loan officer.
Don’t say something like, “When I got sick a few years ago, my bills started to add up.” Give specific dates.
Avoid shifting the blame to other people.
If you lost your home because of financial mismanagement, acknowledge that fact.
Explain how you’ve gotten back on sound financial footing.
For example, you might have started credit counseling or gotten a new job. , The lender will want a thorough financial history of your life after the foreclosure.
Collect the following financial documents:tax returns pay stubs or proof of self-employed income bank statements brokerage statements Credit references like a letter from your landlord or utility company, if you’ve had limited credit since your foreclosure.
About the Author
Alexander Vasquez
Creates helpful guides on crafts to inspire and educate readers.
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