Can You Get A Mortgage After You Foreclose? Yes!

Going through foreclosure is one of the worst experiences a homeowner can ever have. As brutal and demoralizing as it is, it doesn’t mean homeownership is gone forever.

Truth be told, it’s actually easier to qualify for a mortgage after a significant credit event than originally thought. It will have a lot to do with the circumstances of your foreclosure and how you’ve managed your credit since then. So if you want to try the real estate market again, here’s how to get a mortgage after a foreclosure.

What’s the minimum amount of time to apply after foreclosure?

Every mortgage program is a little different regarding the waiting period between foreclosure and applying for a new loan. However, there are some general rules.

Ray Rodriguez of TD Bank says the waiting period is seven years for a conventional mortgage.  Other programs offer significantly less waiting times. The Department of Veteran’s Affairs requires a two year wait, the Department of Agriculture and the Federal Housing Administration require three.

How can you speed up the process?

The way to reduce the waiting time for acquiring a new mortgage is to prove your foreclosure was a result of a substantial financial hardship that you have overcome.

Now there’s a fine line between significant hardship and recklessness. Saying you forgot, or took too many vacations won’t cut it. Legit hardships are major health problems, divorces, a layoff, or a business failure.

Another part of the legitimacy is proving this happened by providing the necessary paperwork like paid hospital bills.

It’s important you write an explanation letter which needs to be short and sweet. Get to the point of your hardship and follow up with how you have recovered.

An important note to remember is that there’s no such thing as a one-size-fits-all recovery program by lenders. Each lender will have different, but similar requirements.

How to rebuild your credit

In order to get yourself a new loan you must prove you have bounced back from your hardship. The first way to prove this is to rebuild your credit and keep it at a healthy number. The absolute minimum number is 580, which means you have to pay bills on time and keep a low balance on any credit cards.

It’s also your responsibility to check your credit reports to make sure they are not flawed, impacting you negatively.

Keep a paperwork trail

Be ready to file every piece of paper finance-related in your postforeclosure life. You’ll want to file your pay stubs, bank and brokerage statements, and tax returns. Your new lenders will ask for this so they can verify everything you’ve put on your mortgage application as a precaution to avoid another disaster.

 Save! Save! Save! This time around you will need a larger down payment to get your mortgage loan.

What about nonprime lenders?

Typically you can land a new loan immediately after a foreclosure with subprime lenders. The downside is it’s expensive. The interest and fees are much higher, and the terms aren’t ideal.

How can a mortgage advisor help?

The sooner after your foreclosure you meet with a mortgage advisor the better. Right when you meet you will be working on your long-term issues that need to be addressed right away.

You will look at three aspects: income, credit, and assets. You need to have a strong three to come out on top, but if one or two is weak, it’s going to cost you big time. Focus on your weakest one and do everything you can to make it stronger.

When you’ve reached the point that your credit score is in a healthy state, you will want to start building your mountain of cash. This will go towards your down payment.

 

Just remember your past does not define your future. A lot of times a bad experience can scare people straight. It’s not uncommon for some people to make a few mistakes and learn as they go. As long as you learn your lesson, and stay on the straight and narrow path to being financially responsible, you can own a home again one day.  

Post a Comment