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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?
Hi Lane,

You won't be able to qualify for a new loan before 2-3 years after the short sale is over. Lenders won't be ready to give you a loan before that.

Thanks
Posted on: 28th Apr, 2011 12:48 am
i filed a chapter 7 bankruptcy and it was discharged in jan of 2006. i have been "paying and staying" in my home since then. i did not reaffirm. now i want to move into another home. if i walk away will i be eligible to get another loan? will a forclosure, even though only in rem and not on me personally, show up on my credit report?
Posted on: 01st Jul, 2011 10:54 am
Hi Stephanie,

If you walkaway from the property, the lender will foreclose it. As far as I know, this foreclosure will be mentioned in your property deed. In that case, you will have to wait for around 3 years in order to get qualified for another mortgage.
Posted on: 01st Jul, 2011 10:53 pm
My husband got sick and past away . I had to let go of my primary home and rental home .the death has been almost 4 years. The short sale has been 3 and the foreclosure has been 2. I'm now remarried and would like to buy a home again . My husbands score is over 700 and perfect . Mine around 600.
Does it help me that is credit is a paper? I want a good rate not a high rate.
Posted on: 12th Jul, 2011 08:03 am
Welcome KPt,

With a credit score of 600, it will be difficult for you to qualify for a conventional loan. Apart from that, your foreclosure is only 2 years old. You will have to wait for 3-4 years after foreclosure in order to qualify for a mortgage.
Posted on: 12th Jul, 2011 11:05 pm
Hi,

I have asked several loan brokers about getting a mortgage after a foreclosure and have been told that I could only get an FHA loan and only after 3 years. It will be 2 years for me this August (2011) since my house reverted to the bank. I have the 20% down, barely, but need to save a bit more for the closing costs and a cushion, which I expect to have in a few months. My income is good, stable, and actually increasing. My FICO score is 709 with the foreclosure. I have absolutely no debt. I use my credit card but pay it off in full every month. Do you know where I could get a loan now or in the next 6 months or so?
Posted on: 23rd Jul, 2011 01:11 pm
The brokers have given you the right information. Though you have a good income, down payment and a good credit score, it will be difficult for you to qualify for a loan after 2 years of foreclosure.
Posted on: 25th Jul, 2011 01:32 am
My home was included in my bk(7) but not foreclosed.the debt doesn't even show up on my credit report.can I get a new home loan?
Posted on: 05th Aug, 2011 03:51 pm
Hi Cg,

After a bankruptcy filing, you will have to wait for 2 years after the discharge to get a FHA loan and 4 years to get a conventional loan.
Posted on: 07th Aug, 2011 10:50 pm
I would like more info on how to get a home loan
Posted on: 13th Sep, 2011 08:16 pm
What type of information would you like, cesar? Please give more details about your situation which will help the members here to give you information in this matter.
Posted on: 19th Sep, 2011 12:46 am
I have heard that you have to wait 3 years after the property sales that you foreclosed on and filed bankruptcy on. Is this true?
Posted on: 03rd Nov, 2011 12:02 pm
Posted on: 03rd Nov, 2011 09:09 pm
i had a forclosure about 2 years ago.im looking to buy a house.selling price is 45.000and i have 10.000 to put down where can i get a loan.
Posted on: 09th Nov, 2011 06:52 am
Hi rick,

After a foreclosure, you need to wait for 3-4 years in order to get a mortgage to buy a property. It might be difficult for you to qualify for a mortgage just after 2 years of a mortgage foreclosure.

Thanks
Posted on: 09th Nov, 2011 09:10 pm
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