Mortgage after foreclosure - 5 Tips to qualify for a new loan

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If you've been in foreclosure, your credit must have trashed down and this is what will stop you from buying a home or qualifying for a new mortgage after foreclosure. You'll have to organize your finances and get financially stronger prior to getting a home loan again.

You can try getting a loan 1 year after foreclosure but chances are you'll be charged with very high rates. The best thing is to wait for at least 2-4 years to get the better and lower rates on your new loan. Even if you'd like to get a mortgage after 2 years, you can try out with FHA loans but you need to have minimum score of 580-600 especially in times of mortgage and housing crisis.

5 Tips to qualify for Mortgage after Foreclosure

Here are 5 Do's to help you get a home loan after foreclosure.
  1. Rebuild your credit:
    Getting mortgage months after foreclosure may not be impossible but you should be prepared to accept higher rates of interest. For eg: you may be paying 8.20% rate with 2 points for 30 year fixed rate loan while anyone having good credit and not being in a recent foreclosure may get a 6.20% rate with 0 points. So, what you need doing is to rebuild your credit before you apply again.

    The best thing is to make on-time payments on bills, credit cards etc. If possible, negotiate to lower the interest rate on your credit cards as that will help you save more. Also check your credit report for any inaccurate information being reported to the bureaus.

    You may open new credit accounts but maintain regular payments - this is what lenders will be concerned about when you look out for a new mortgage. Know more...

  2. Save for down payment:
    To get the best loan program, you'll have to put down 15-20% of the home purchase price as the down payment. The more you put down, the less you need to borrow and the less you need to pay.

  3. Prepare a budget:
    Make sure that you plan a budget and spend according to it. A budget will help you maximize your savings. Use the Simple budgeting tool to plan your budget on a monthly basis. When you start budgeting, try saving some cash in an emergency fund as cash reserves help in qualifying for a mortgage loan.

  4. Check your affordability:
    Go for a house that is affordable. Also, calculate the monthly payments (including property taxes and insurance premiums) on your new loan and see if it's well within your reach. Use the Home Affordability Calculator to find out how much you can afford.

  5. Check the housing market:
    Even though you may save enough and rebuild you credit, it's important to check the housing market in your area. If you're in a declining market, be careful when you buy. Chances are, if you default, you may be unable to retrieve the loan balance by selling off your home as a result of declining home prices.

    At times, certain lenders inflate appraisals and offer more money than the buyer is supposed to get. Make sure that you don't get an inflated appraisal or else you'll be paying more than you should. And later on you may not be able to repay thereby ending up in foreclosure.

Once you've been in foreclosure, what the new lender will check is how your credit has been used since the financial hardship that led to foreclosure, and how much you'll be able to put down on the new house. In fact, banks may not lend more than 75-80% of the home purchase price to anyone having gone through foreclosure in the past 2 years or so. So, it's important that you have a savings plan and adequate cash reserves.


Last updated on January 8, 2014

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Mini Profile  isacmar55




Joined: 04 Oct 2007
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Post     Post subject: Mortgage after foreclosure - 5 Tips to qualify for a new loa

How difficult is it to get another home mortgage after a foreclosure? Also van anybody tell me how to qualify for mortgage after foreclosure?
Mini Profile  adonis

adonis


Joined: 22 Oct 2005
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Post     Post subject: how long to get a mortgage after foreclosure

Welcome Isacmar,

You can get another mortgage after foreclosure even after 1-2 years of the auction taking place. But that would require you to pay higher rates of interest. So, it is better that you try to improve your credit which will be damaged by foreclosure and then start off with a mortgage.

One more thing is that, the credit effects of foreclosure will get reflected in your credit report and this will continue for long 7 years. So, try and rebuild your credit and only then proceed to take out a big loan such a mortgage.

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Mini Profile  jenkin7

jenkin7


Joined: 04 Jun 2007
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Post     Post subject:

Hello Isacmar,

It is indeed difficult to obtain mortgage after foreclosure but it is not impossible. It definitely affects your credit report but with careful planning you can get a mortgage. The foreclosure stays in your report for as long as 7 years and mortgage lenders generally focus on the last three years of your credit history when they consider your application.

It is best to wait for 2 years after the foreclosure and then get into another mortgage so that you can build a good credit in the meantime. But sometimes a large down payment and a good credit score might assist you in qualifying for a mortgage after foreclosure. You may also request for quotes from the sub-prime lenders who usually offer loan to people with bad credit.
Mini Profile  liaoyu03




Joined: 09 Sep 2007
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Post     Post subject: requirement to get a mortgage after foreclosure

It's approximately two years after gettng another mortgage loan after a foreclosure. And it depend on your credit too.
mo


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Post     Post subject: foreclose to bankruptcy

what will happen to my foreclose if i file for BK.
and how long am i be able to buy a house again
with bk/foreclosure on my records.
Mini Profile  Caron

Caron
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Joined: 19 Jul 2005
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Post     Post subject: RE:mortgage after foreclosure and bankruptcy

Hi mo,

welcome to our forums.

If you file bankruptcy, be it chapter 7 or 13, it will legally prevent the lender from filing foreclosure. But which of the chapters have you filed?

Quote:
how long am i be able to buy a house again
with bk/foreclosure on my records.

You have to decide whether you'll file bankruptcy or go for a foreclosure. I would suggest trying chapter 13. But you'd have to check if you qualify for chapter 13 . Also, talk to a bankruptcy attorney to find out your chances of qualifying for Ch 13.

Regarding buying another home after bankruptcy, it depends upon the chapter you'll file.

good luck

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bittersweetwoman


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Post     Post subject: bankruptcy/forecloser

I have filed chapter 7 BK and have been discharged. My husband just lost his job so now we will probably have to foreclose on our home. Is there anyway for me/us to quailfy to buy a home/condo for like 130k if we put 40k down? My credit is still okay even after BK.
Mini Profile  adonis

adonis


Joined: 22 Oct 2005
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Post     Post subject: when can you apply for a mortgage after foreclosure

Hi bittersweetwoman,

You haven't mentioned which chapter you had filed. As far as I know, if you had filed chapter 7, then you will have to wait for 2 years after discharge to get a FHA loan and for conventional loans you will have to wait for 4 years.

In case of Chapter 13, you can try for FHA loans after 1 year of discharge. For conventional loans, you will have to wait till 2 years after discharge. So if you fulfill these guidelines, you may apply for a loan.

_________________
Procrastination is the enemy of your financial success
mj


Guest




Post     Post subject: help

I have filed foreclosure a year ago but I was surprised that my credit score did not go down that much. As a matter of fact, I just checked it recently it is more than 700. Could it be because it did not affect my credit score yet? Also, I have been saving money. Do you think the houses are even going to go down further since the economy is not getting better and when is the time for me to buy a house with a lower interest rate? Thank you.
lmkeef


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Post     Post subject: mortgage foreclosure

we have an investment property we are thinking about letting the bank take back how will that affect our credit and for how long?
Ryan12


Guest




Post     Post subject:

To Mj:

I suppose the lender hasn't yet reported the foreclosure to the credit bureaus. That is why it isn't refleted on your credit report yet. As for buying the house is concerned, you could do i now because fixed rates are quite low now, that is, within 5.5% (national average).

To lmkeef,

If you allow the bank to take back our investment property, obviously it will affect your credit by 200 points or so. The negtiave item will stay on your credit report for 7 years, though if you rebuild credit, you can buy another home or property with a mortgage after 2-4 years.
Kristi


Guest




Post     Post subject: project

Hi I am a 36 year old woman and I have to do a speech to my peers at work. I want to do foreclosures but I cant say anything that is wrong. Well i know some things but I need more. Can anyone just please help its due Feb the 17th 2009.

Thanks,
anonymous
Mini Profile  adonis

adonis


Joined: 22 Oct 2005
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Post     Post subject:

Hi Kristi,

You can check out the following link to get ample information about foreclosure:
http://www.mortgagefit.com/foreclosure.html

I hope it helps you.

_________________
Procrastination is the enemy of your financial success
AZscrewed


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Post     Post subject: Foreclosure

My husband and I bought a home in AZ in 2006 for $400K. At the time, it was a great deal. Now, the home is probably worth $280K if that due to foreclosures. Our mortgage has increased due to taxes (scam)and we will never recoup what we've lost. We are considering letting it go and starting over. None of our accounts are currently delinquent and we have a good dual income. If we did this, what kind of credit drop should we look forward to. Last time we checked, we were in the 700s.
Mini Profile  adonis

adonis


Joined: 22 Oct 2005
Posts: 12177
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Post     Post subject:

Hi guest,

If the lender forecloses the property or if you go for a deed in lieu, your credit score will drop by 250 points. If you go for a short sale, your credit score will drop by 75-100 points.

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Procrastination is the enemy of your financial success
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