One of the first steps of buying any home is getting a mortgage loan. But what do you do when you have a foreclosure on your credit report? You might be worried that you will never be able to buy a house again. While getting approved for a home loan after you have a foreclosure is difficult, it’s not impossible. You can find lenders that will be willing to look past the foreclosure, but it won’t happen overnight. You will have to rebuild your credit and wait.
How long you have to wait will depend entirely on the type of home loan that you are looking at getting. Each one has different requirements, both in terms of credit, income, and wait time. Some loans might make you want as long as seven years before you can apply for another one, where others might only have you wait a year. It all depends on the lender and your circumstances.
Conventional loans, or those from banks and other lenders, all have varying wait times when it comes to lending after a foreclosure. If you are looking at a conventional loan that is backed by Fannie Mae or Freddie Mac, you are going to be waiting for a long time. These loans require a waiting period of seven years, after your foreclosure has completed. When it comes to conventional loans, you will also find that you will be facing stricter credit score requirements, as well as debt-to-income requirements. While it’s not impossible to qualify for a conventional loan after a foreclosure, this type of loan will be the hardest to get, and you will have to wait the longest.
If you are an active or retired member of the military, or your spouse is, a home loan from the Department of Veterans Affairs, or the VA. The VA offers a lot of great assistance, both in getting a loan, avoiding foreclosure, and lending after a foreclosure. If your prior foreclosure was on a VA loan, you will have to first repay the loss in order to qualify for another loan. You will also have to show that you have recovered financially. If your foreclosure was on a non-VA loan, you will have to wait around two years. However, if you qualify for a VA loan, this is a great program to use, and they provide plenty of free assistance and counseling.
The Federal Housing Authority, or the FHA, offers government backed loans. This means in the event of a foreclosure or default, the lender still receives their money, because the loan is insured by the federal government. You do pay for that insurance. While you will typically have to wait around three years after your foreclosure has completed, recent changes in the FHA make it possible to qualify for an FHA loan after a year. However, you will need to show, through documented proof, that a catastrophic event, like job loss or medical emergency, decreased your income by at least 20 percent for over six months.
Rebuilding Your Credit
The waiting time for different loan programs varies, depending on the organization that will be doing the lending. But one thing is shared by all of these lenders. You will need to be rebuilding your credit. A foreclosure can reduce your credit score by at least 100 points, which is a huge blow to your credit. To show that you are loan worthy, you will have to rebuild your credit, and show that you have recovered financially.
The simplest and fastest way to rebuild your credit is by paying all of your bills on time. Don’t max out credit cards. You will also want to avoid taking on any new debt. If you can, find a rental property that reports on your credit with timely payments, like Experian’s RentBureau program. It will take time. Building up your credit score always does. The best way to rebuild your credit is simply make all of your payments on time.
Unfortunately, when you have a foreclosure on your credit report, you will likely be required to pay a larger down payment. While an FHA loan might only require three and a half percent, a conventional loan might require 10 percent or more as a down payment. Sometimes, a larger down payment can make up for a lower credit score.
Going through a foreclosure might feel like the end of the world, but it doesn’t have to be. Use the free assistance and counseling provided by the state of Idaho and the federal government to help you through the process, and after. Work on building up your credit, save money for a down payment, and soon you will be able to buy a home again.