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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 Beverly,

You can get a FHA loan after 3 years have passed since your foreclosure have taken place. However, you should have a good credit in order to qualify for a FHA loan. A minimum credit score of 620 is required to get a FHA loan.

Posted on: 20th Oct, 2009 11:36 pm
I have a question. I filed for Ch 7 back in Feb. of 2007. It was discharged in June of 2007. At the time I filed I was current with my 1st and 2nd mortgage company but they did NOT reaffirm either debt. I just kept making my payments. I was unaware until this month that the mortgage companies were not reporting me correctly. I have received notification that both have updated all 3 bureaus to reflect that both home loans were "included in BK" and have zero balances all dating back to 2007.

Here is my issue, I have continued to make both loan payments until this past August (on the big 1st- current on the small 2nd different lender). We were going to do a short sale but came upon this info (didn't know that we didn't reaffirm the debts) and are thinking about staying as long as we can in the house and then letting it foreclose (save $).

My question is, will the mortgage companies update both accounts on my credit report with a foreclosure status once it gets to that point? Or will they not report them since they have not reported anything since 2007? i want to get a new home loan on a new house. I was told to hurry up and get a new home loan before the banks report any foreclosure proceedings. AND if they do report foreclosures, is the date of the foreclosure NOW or back to the discharge date? I guess I need to know if I can get a home loan now and if I should hurry up. Thanks
Posted on: 23rd Oct, 2009 11:33 am
Hi Liz M,

Though you included the mortgage in your bankruptcy filing and did not reaffirm the debts, the lender still holds the lien on the property. As soon as you stop paying the dues, the lender has the right to foreclose it. This foreclosure would be reported in your credit report. The date on which the foreclosure takes place would be mentioned in your credit report.

Posted on: 23rd Oct, 2009 11:36 pm
thanks James. I have been told yes and no by various attorneys so who knows what will happen. Thanks for the response.
Posted on: 26th Oct, 2009 01:05 pm
Hi Question - I'm wanting to buy the house I'm currently renting. I did a deed in lieu of 2.5 years ago and have a credit score of 630. I have 3.5% to put down on my current home, but my lender is telling me I can't get a loan until the deed in lieu of is 3 years out. Is this true? I already have the contract with the owner and everything was set up to close until the broker realized this date..
Posted on: 08th Nov, 2009 05:17 pm
Hi MJ,

Once your deed in lieu of foreclosure is 3-4 years old, you would be able to get a loan for a new property. Before that, lenders won't be ready to give you a loan.
Posted on: 08th Nov, 2009 09:58 pm
Hi, I filed bankruptcy and received my release letter in July 08. I would like to purchase a home, I have the downpayment, my credit score is up to 650 and I have been on my job 7 years. I want an FHA loan but I have heard that they don't (lenders) even look at your record until exactly 2 years after bankruptcy which will mean July 10 for me. Is this true?
Posted on: 29th Dec, 2009 10:11 pm
hi guest,

if you filed for chapter 7 bankruptcy and received a discharge on july 2008, then you'll have to wait till july 2010 in order to qualify for a fha loan.
Posted on: 31st Dec, 2009 12:02 am
Our home went into foreclosure and was to be sold by the bank in the morning when a rich friend went to the bank and bought it back for us before the bank could sell it that morning. He is letting us pay him for the house under the same payments and interest as the bank. We want to buy the house back from him is there anyone that would give us a loan, we owe about 20,000 on the house that was appraised for 250,000. How can we get money out of the house? The man said he would write something saying we have been paying on time for the last 4 yrs. Help
Posted on: 01st Jan, 2010 11:10 pm
We did not file for chapter 7 bankruptcy . Could we qualify for a FHA loan?
Posted on: 01st Jan, 2010 11:14 pm
No bankruptcy, what about a FHA loan?
Posted on: 01st Jan, 2010 11:16 pm
confused, what you've left off is information about your credit standing. that's critical to let you know who might grant a mortgage loan to you.

you could find it difficult because you're buying back your old home, and you'd have to structure it as a purchase. then the question of sales price enters in, as does down payment. i suspect most lenders would be scared off by your current situation.

would your benefactor consider transferring title back to you and holding a mortgage for the minimal amount you owe him? that would accomplish the same thing you're looking for and make it smoother, assuming he's open to suggestion.
Posted on: 02nd Jan, 2010 06:37 pm
Do the mortgage companies see a different credit report than what we pay to see? My credit report didn't actually say I was defaulted on my loan, it just showed a late payment twice, but I was denied a mortgage 14 months after my foreclosure even with a 725 credit score
Posted on: 21st Jan, 2010 03:45 pm
Do the mortgage companies see a different credit report than what we pay to see? My credit report didn't actually say I was defaulted on my loan, it just showed a late payment twice, but I was denied a mortgage 14 months after my foreclosure even with a 725 credit score
Posted on: 21st Jan, 2010 03:46 pm
I recently went through chapter 7 and included a rental condo in FL. I owned this with another person who is still deciding what action he wants to take (deed-in-lieu, short sale, foreclosure). How will each of those actions affect (and the ch. 7) affect my ability to get an FHA loan in the future?
Posted on: 10th Feb, 2010 09:21 pm
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