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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 gerry!

Welcome to forums!

After 2 years of Chapter 7 discharge, you will be able to qualify for a FHA loan provided you meet the required criteria of the lender. If you want a conventional mortgage, then you will have to wait for 4 years.

Feel free to ask if you've further queries.

Posted on: 03rd Jul, 2012 01:17 am
my wife and i filed for ch 7 in 2008. the bank kept our name on the title until 2011 saying they flagged it to stop forclosure due to the bankruptcy. this is non sense the property and loan were listed in bankruptcy and discharged in 2009. bank of america took over paying taxes in 2008 because we were forclosed on . how can they justify keeping our name on the deed for three years after we were relieved of the property
Posted on: 29th Oct, 2012 03:03 pm
Hi Guest,

Unless the property is sold off in a foreclosure sale, there are high chances that the property will remain in your name. You should have requested the lender to sell off the property ASAP.

Posted on: 30th Oct, 2012 10:33 pm
We filed chapter 7 in Feb of 2009 discharged in June 2009 included our home in the bankruptcy and moved out. Bank didnt foreclose till June of 2011 even though the home set empty. We have since rebuild our credit to the 680 range and have stable jobs and good income.I need to know when we would be able to abtain and FHA loan (prior Loan was Conv)
Posted on: 11th Dec, 2012 03:43 pm
Hi mac,

After a foreclosure, you need to wait for 2-3 years in order to get qualified for a FHA loan.
Posted on: 11th Dec, 2012 10:55 pm
HOA forclosed on our house 2/2012 but it seems the bank hasn't started the forclosure process yet. Still getting modification letters from the bank. We want to buy a house, but is it possible?
Posted on: 17th Jan, 2013 08:47 am
Welcome mindya,

You can contact the HOA and the lender and apply to buy the house. It will be their discretion whether or not they will allow it.
Posted on: 17th Jan, 2013 08:33 pm
About 6 years ago, the bank had started foreclosure proceedings on our home but we sold it before they actually foreclosed on it. This is showing on my credit report even though they didn't actually forclose and it's been 6 years ago. Can this be removed from my credit report?

Posted on: 26th Jan, 2013 11:53 am
Hi regina,

You can contact the credit bureaus and ask them to update the correct entry in your credit report. It will depend upon them whether or not they will do so.

Posted on: 27th Jan, 2013 10:16 pm
My husband and I are trying to get pre-approval to build a home. In 2008, we had a home go into foreclosure. Fortunately, it sold shortly after it went into foreclosure and the mortgage was paid in full. That was 5 years ago and it's preventing us from getting a mortgage. Is there a way to get it removed from our credit report.
Had another foreclosure in June 2010 on an investment property in AZ. Everyone knows what happened to the housing market out there. We tried to work with the bank - they wanted full payment and we could only afford partial payments so we were always in arrears. The house foreclosed.

I am told that once a foreclosure is 3 years old, one is eligible for a mortgage. We are trying to get approval to start building. The house won't be done until June and that is when the mortgage will start and also when the foreclosure will be 3 years old. Does anyone know of a company that may prequalify us now. If we don't get pre-approval, the builder won't start the house. Many thanks
Posted on: 01st Feb, 2013 02:07 pm
Hi lizkuntne,

A foreclosure will remain in your credit report for 7 years. But after 3-4 years of foreclosure, you may be able to get a loan if your credit and income situation is good. It will be difficult for you to get a pre-qualification now.
Posted on: 03rd Feb, 2013 10:36 pm
Posted on: 22nd Feb, 2013 06:35 pm
Posted on: 22nd Feb, 2013 09:57 pm
You don't have to wait forever after foreclosure. You can buy a new home in less than 2 years. I did!

My Realtor turned me on the the Flexible Credit Loan. It seemed too good to be true, but I got approved and now have a pending offer, even after my foreclosure less than two years ago. Big banks said it could not be done.

Obviously it can.
Posted on: 23rd Mar, 2013 09:30 pm
Thanks for sharing your experience with us! :)
Posted on: 25th Mar, 2013 09:50 pm
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