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

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 04th Oct, 2007 06:16pm
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.
Posted on: 04th Oct, 2007 06:16 pm
How difficult is it to get another home mortgage after a foreclosure? Also van anybody tell me how to qualify for mortgage after foreclosure?
Posted on: 18th Mar, 2009 04:53 am
HI I HAD A FORECLOSURE IN AUGUST OF 08 BUT I FILED BK CHAPTER 13 TO AVOID LOSING MY HOUSE. SHORTLY AFTER I LOST MY JOB AND MY HUSBAND COULDNT KEEP UP W THE PAYMENTS SO WE LOST OUR HOME. NOW WE HAVE A DISMISSAL FROM THE BK. DO YOU THINK ITS POSSIBLE TO GET ANOTHER MORTAGAGE ANY TIME SOON. NOW OUR FINANCIAL SITUATION IS STABLE BUT OUR CREDITS ARE NOT. PLEASE LET ME KNOW IF I HAVE ANY PROBABILITIES AND THANK YOU.
Posted on: 18th Mar, 2009 09:55 am
Hi MILNANI,

Considering the current market situation, it might not be possible for you to get a mortgage. You may get one, but you will hae to pay higher rates for that. Generally, it is advised that you wait for atleast 2 years after a chapter 13 discharge before you apply for a mortgage. This will help you get better rates. The time will also give you an opportunity to build your credit and qualify for a loan in future at ease.
Posted on: 19th Mar, 2009 05:07 am
My ex and I are divorced in status only. I moved out of the home 3 years ago and paying rent in an apt and he has been living in our home and paying the mortgage. Since I haven't been in contact with him for over 3 years he let the home foreclose. I was never notified of the proceedings or of anything. My credit was good but now terrible. I have a good stable career and make good money. My credit independent of his was good. Is there any way that a lender consider my credit history alone to qualify?
Posted on: 20th Mar, 2009 10:13 pm
Hi det,

If you want to get a loan in your own name, your credit history alone would be taken into consideration by the lender. Your husband's credit history won't make a difference. You have a stable income which is a plus point in getting a loan. However, as your credit has taken a hit of late, your lender may ask you to pay down a considerable amount or may ask for higher interest rate.

Thanks,

Jerry
Posted on: 23rd Mar, 2009 05:56 am
Hi, My ex husband and I bought a house in 1996, we seperated and He kept the house. Although he tried eventually the house was forclosed on in 2002 however it was not sold until 2006 but the judgement was not paid until 2008. I have been trying to buy after getting my credit in line but am still being turned down because of the forclosure. Anyone have any suggestions as to what I can do to get this problem solved without just having to wait untill 2011?
Posted on: 26th Mar, 2009 04:09 pm
Hi

Are you being turned down because of your credit that took a hit due to the foreclosure? However, there doesn't seem to be any other way for you but to wait a few more years.
Posted on: 27th Mar, 2009 06:26 am
I have been told by a mortgage broker that I cannot qualify until 3 years after auction of my foreclosure. Its been 2 years already. Any advice on who I can try to get a loan through?
Posted on: 29th Mar, 2009 02:41 am
Hi

It is better to wait a little longer as this will help you get a better deal. The lenders find it risky to offer loan to borrowers who have suffered a foreclosure in recent past. But you can still qualify for a loan, provided you're ready to pay higher rate of interest on it. But it would be worth waiting for some more time to get a loan at affordable rates and terms. However, you can go for a no obligation free consultation with the community lenders of this forum and see what they have to offer you.
Posted on: 30th Mar, 2009 05:40 am
I read an article on CNNMoney.com that states a FICO score will drop the same with a short sale as with a foreclosure. But I read a lot here that states a big difference in the drop. I've seen other articles quoting the same drop too. Which is correct?
Posted on: 31st Mar, 2009 08:27 am
Hi MikeB,

I am not an expert but while participating in this forum I have seen experts saying that in case of short sale, the credit score may drop by 80-100 points whereas in case of foreclosure, the credit score will drop by 250 points.
Posted on: 01st Apr, 2009 12:37 am
My ex has gmblng-addiction, because of that he gambled us in foreclosure and BK which happened 7 years ago.Currently I have good stable job, my credit score is 680.I have been paying my credit card bill and student loan faithfully.Is there any chance I can be quilified for mortgage?
Posted on: 10th Apr, 2009 04:24 pm
Hi justme,

I don't think you'll face issues in getting a mortgage as 7 years have already passed since you filed bankruptcy. With a credit score of 680, you'll be able to get a FHA loan. However, if you are planning to get a conventional mortgage, you will have to improve your credit score and raise it to 720.

Thanks
Posted on: 10th Apr, 2009 09:59 pm
i am going through 2 investment foreclosures,all my other mortgages and credit is perfect,this is my first bad credit ever..in over 30 yrs.i have a strong income and wanted to know how long i have to wait to refinance my home loan or if i could refinance with my current equity lender?how long will it take?
Posted on: 15th Apr, 2009 02:37 pm
Hi Karen,

As far as I know, you won't be able to refinance the loan immediately after the foreclosure. You'll have to wait for at least 2-3 years in order to refinance.

Thanks
Posted on: 15th Apr, 2009 09:03 pm
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