how to buy a home with a foreclosure on your credit report

When your credit score is still low due to your or other financial problems but you have a lot of cash to put down, or a willing co-signer, you can get a conventional loan through a financial institution.
If the foreclosure was not on a VA loan, you must wait between two and three years to apply for a loan using your VA benefits, and you’ll need to demonstrate that you have recovered financially.
The best way to qualify for a home loan with a foreclosure on your credit report is to immediately begin rebuilding your credit.
You know you are facing extra challenges because of your foreclosure in the past, so talk to housing counselors who can help you navigate the different loan programs and lending options.
Obtaining a home loan after foreclosure takes time, patience and attention to credit repair.
As long as you’ve worked hard to pay your bills on time and protect your credit since your foreclosure, getting a home loan is not impossible.
To get approved for an FHA loan, your foreclosure must have been discharged at least three years ago.
The USDA offers several loan programs for people who live in rural areas, including the Rural Housing Guaranteed Loan, the Rural Housing Direct Loan and, if you want to build your own home, the Mutual Self-Help Loan.
According to, this is no longer the case, and most potential homebuyers need a credit score of at least 640, which will require responsible credit use in the years after foreclosure.
If the prior foreclosure was on a VA loan, you’ll need to repay the loss to the VA before you can take advantage of another loan with them.

•2-year wait from the discharge or dismissal date may be accepted if borrower can show extenuating circumstances.
•2-year wait time if borrower can show extenuating circumstances and puts 10% or more down.
•2-year wait for a dismissal if borrower can show extenuating circumstances.
•3-year wait if borrower can show extenuating circumstances (additional underwriting requirements apply for 4 years after 3-year waiting period).
•2-year wait if borrower can show extenuating circumstances.
•3-year wait if borrower can show extenuating circumstances.
•1-2 year wait if borrower can show extenuating circumstances.
•2-year wait from the discharge date or 4-year wait  from the dismissal date.
Their website says that your score could start to rebound in as "little" as two years after the foreclosure — as long as you stay current on all of your other debts.
Prior to June 20, 2010, the waiting period for a Fannie Mae loan following a foreclosure was five years.
Now, to qualify for a Fannie Mae or Freddie Mac loan, you must wait at least seven years after the foreclosure.
If the foreclosure also involved an FHA loan, the three-year waiting period starts from the date that FHA paid the prior lender on its claim.
You may be able to shorten the waiting period to three years for a Fannie or Freddie loan if you can meet all of the below requirements.
To qualify for an FHA mortgage loan, you must wait at least three years after the foreclosure.
That means your FICO score must meet the lender’s minimal requirements to qualify for a post-foreclosure mortgage loan.
Even after the three-year foreclosure period, you may not qualify for FHA’s low-down payment loan.
Other lenders may shorten the post-foreclosure waiting period, provided that you make a larger down payment (sometimes 25% or more) and agree to a higher interest rate.
If you’ve been through a foreclosure, you can expect to have to wait between about three and seven years — depending on why you defaulted, your current credit score and the type of loan you’re applying for, among other factors — before buying a home again.
Unfortunately, a foreclosure hurts your credit score, which means that it will be harder and sometimes impossible to get credit cards and loans in the coming years and that you can expect to pay higher interest rates.
After about three months or more of missed payments, your lender will send a “demand letter’ or “notice to accelerate,’ which outlines the amount you are delinquent and the date you must pay that amount by; should you not pay by the date, the lender will start foreclosure proceedings.
Potential buyers must show that since the foreclosure they have raised their credit score significantly by paying all bills on time and not taking on too much debt.
For example, Fannie Mae requires borrowers to wait five to seven years to buy after a foreclosure and three to seven after a foreclosure with “extenuating circumstances’ (which are factors such as illness and severe injury that were beyond your control).
A foreclosure can lower your credit score by anywhere from 200 to 300 points for the first 2 years afterward, according to Mortgage Home Loan.
So, while the foreclosure doesn’t go away from your credit report for 7 years, it becomes less of a factor in your credit score, one of the chief determinants of whether you can finance a new home.
Liz Pulliam-Weston, a financial author, writes that you should start repairing your credit soon after your foreclosure with either an installment loan or revolving credit, such as a credit card.
Read on to learn more about what happens to your credit score following a foreclosure, as well as how short sales, deeds in lieu of foreclosure, and other forms of loss mitigation affect your score.
Compared to a foreclosure, certain other loss mitigation options, such as loan modifications, have a relatively minor impact on a credit score.
Much like a foreclosure, a short sale or deed in lieu of foreclosure can result in a credit score drop of 100 points or more.
The foreclosure will remain on your credit report for seven years, but its impact on your FICO score decreases over time.
People often mistakenly think that completing a short sale or deed in lieu of foreclosure will save their credit score.
In fact, many lenders require a period of two to seven years following a short sale or deed in lieu of foreclosure before they will extend new credit.
A foreclosure won’t wreck your credit forever, but your credit score will take a serious hit and the foreclosure will have a significant impact on your ability to obtain another mortgage for quite some time.
You can get a new mortgage as little as one year after foreclosure (for FHA-backed loans) if you meet certain criteria and maintain satisfactory credit during this time period; however, in some cases, it be as much as seven years from the completion date of the foreclosure before you can get another mortgage.
A foreclosure substantially lowers your credit score, which prevents you from getting favorable interest rates on any form of credit in the future, and can even prevent you from obtaining credit at all in some circumstances.
It is almost impossible to predict how a foreclosure will affect the availability or cost of obtaining other forms of credit, such as a car loan or credit card.
However, if you already have a low credit score, you’ll most likely see less of an impact than if you had a very high credit score prior to the foreclosure action.
In general, you can expect to lose 100 points or more from your credit score as a result of a foreclosure.
(Learn more about loan modifications in our Alternatives to Foreclosure area.) However, even if you do a loan modification, this doesn’t mean that your credit will be unscathed.
Once that foreclosure disappears, as long as you’ve paid your bills and eliminated debt in the meantime, your credit score will experience a sudden jump.
A housing foreclosure can cause significant damage to your credit score, dropping it by 150 or more points, depending on how many house payments you missed before your lender made your foreclosure official.
Making all your payments on time is a sure way to rebuild your credit score, even after you’ve suffered a foreclosure.
As time moves on, that foreclosure’s impact becomes less and less, especially if you’ve taken steps to build a new, better credit history since losing your home.
Spend money wisely until your foreclosure falls off your credit report, something that happens after seven years.
As you demonstrate a history of paying your bills on time and reducing your debt, your credit score will gradually begin to rise.
If you do this steadily, the impact on your credit score from a foreclosure will steadily lessen.
Time is the only thing that will remove a foreclosure from your credit report.
The more debt you eliminate, the stronger your credit will be, even after you’ve gone through a foreclosure.
Your credit score will be at its lowest point immediately after a foreclosure.
While Wilson says ‘there is not a ‘one size fits all’ plan to prepare someone for buying again,” basic steps like -committing to positive credit actions” and ‘saving money to purchase a home in the future’ are vital if you want to apply again after passing the wait period.
Conventional loans backed by Fannie Mae or Freddie Mac require the longest waiting period: “Seven years from completion,” according to Nick Wilson, a production partner at RPM Mortgage Inc.
“Some require 10 percent down after foreclosure.” Be prepared to have a down payment and additional liquid assets when you apply for a loan.
“A foreclosure can lower someone’s credit score by 100 or more points,” Wilson said.
Recent changes in Federal Housing Authority rules have made it possible to get an FHA-backed loan as soon as a year after completing foreclosure, if you can prove an economic event outside of your control caused the foreclosure.
Someone that has had a short sale can expect to wait at least 2 years for a decent interest rate on an institutional mortgage loan, although negative credit will show on your credit report for 7 years.
It seems to me that foreclosure, short sale, deed in lieu, cash for keys all mean the lender probably lost money so there is a negative connotation – Its my understanding all of those things get reported simply as “foreclosures” on credit reports.
If you negotiated a short sale of your home, you may be surprised to learn that some mortgage loan underwriting systems can’t distinguish short sales from foreclosures on consumer reports.
The problem I am running into with a lot of mortgage applicants is that the new FHA, Fannie Mae Guidelines call for a 0x30 mortgage history on the home that was short-sold, and in reality, most people are not 0x30 on the home before the short sale takes place.
Is there a difference in the way reporting is done by state? I did a 'short sale' on my home back in 2010 and it shows as a completed loan on my credit report.
Carefully consider the costs and risks of the loan that you are offered, and weigh the costs of the loan you might be able to get now against the option to wait and build up your credit history before buying a home.
Even if you have a bad credit history or a low credit score, you may qualify for an Federal Housing Administration (FHA) loan.
Foreclosure information generally remains in your credit report for seven years from the date of the foreclosure.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, has some tips to help short sellers avoid a potentially costly mistake: being kept out of the housing market because of difficulties interpreting short sale and foreclosure information on consumer reports.
A short sale occurs when you sell your home for less than the balance you owe on the mortgage loan, and the lender agrees to accept the proceeds of the sale instead of pursuing foreclosure.
Do you know what kind of mortgage you have? Do you know whether your payments are going to increase? If you can’t tell by reading the mortgage documents you received at settlement, contact your loan servicer and ask.
You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe.
Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you.
Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return.
If you are having trouble making your payments, contact your loan servicer to discuss your options as early as you can.
While some agencies limit their counseling services to homeowners with FHA mortgages, many others offer free help to any homeowner who is having trouble making mortgage payments.
Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return.
A counselor with a housing counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer.
HPF is a nonprofit organization that partners with mortgage companies, local governments, and other organizations to help consumers get loan modifications and prevent foreclosures.
Regardless of the reason for your mortgage anxiety, the Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to know how to help save your home, and how to recognize and avoid foreclosure scams.
Or maybe you’re one of the many consumers who took out a mortgage that had a fixed rate for the first two or three years and then had an adjustable rate – and you want to know what your payments will be and whether you’ll be able to make them.
If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy.
To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan.
At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current.
The options on this site that modify your mortgage terms, suspend or reduce your payments, or allow you to sell or leave your home and avoid foreclosure, may have a negative impact on your credit.
For example, a mortgage modification on your credit report could lower your FICO® score by more than 50 points.
According to FICO, the impact to your credit score will depend on what’s being reported (i.e., the action being pursued, any late payments reported, etc.) as well as on your overall credit profile.
Learn about your credit score, what it is and how it affects your ability to take advantage of some foreclosure options.
However, the impact of a credit score goes even further—your score could be reviewed when you are renting housing in the future, when applying for a cell phone or cable TV account, and may even impact whether you must pay a deposit before receiving electric and gas utility service.
The more times you are late (or miss payments), the more negative items that may appear on your credit report, which in turn may lower your FICO® score.
Credit scores are likely to play a key role in your ability to obtain credit (auto loan, mortgage loan, credit card, etc.) and in the determination of the interest rate you will pay for that credit.
To find out how each option may affect your credit score, ask your mortgage company for specific details.
Likewise, a foreclosure, which will involve many missed payments as well as repossession of the property, will have a damaging impact to your credit and may take several years (as many as seven years) for your credit to fully recover.
After the bad experience of the housing bust, when falling prices left millions of homeowners owing more than their home was worth, a break-even period of seven, eight or even 10 years seemed like a safer bet.
If you’re ready to borrow again, it’s worth shopping around, assuming your credit history has been pristine in the years since the foreclosure, short sale or deed-in-lieu.
The traditional rule of thumb says that owning makes sense if you will have the mortgage for at least four or five years.
So don’t buy unless you intend to stay put at least that long, especially if you wouldn’t have enough accessible cash to make up the difference if things went wrong — your home couldn’t sell for enough to pay off the loan and cover other selling costs.
NEW YORK (MainStreet) — Various reports say that people who lost their homes to foreclosure are lining up to buy again, or getting ready to, having spent the prescribed time in renter purgatory.
It likely won’t be anytime within the first two years, but it is possible to secure credit with a bankruptcy or foreclosure on a credit report.
It will be very difficult to secure any other lines of credit while a foreclosure is present on a credit report.
Whether you stopped paying your mortgage on purpose as a “strategic default,” or due to a financial hardship, having a foreclosure on your credit history is very damaging.
As your foreclosure ages, it won’t be ignored, but will be less of a damper on your credit if you make it a habit to pay financial obligations on time and never run up high credit card balances.
Foreclosure is a legal process where a creditor (for example: a lender or mortgage holder) can repossess or sell property for the purpose of repaying the debt owed on that property.
Foreclosure by the power of sale In a foreclosure by the power of sale the mortgage holder, or lender, sells property outside the supervision of a court.
This amount owed includes the principal, interest, late charges, attorneys’ fees and any other charges the lender is permitted to charge under the terms of the mortgage, or the laws of the state where the property is located.
In these states lenders are required to (1) provide a homeowner with sufficient notice to allow the property owner to understand he or she is in default, and (2) notice of the property owner’s right to cure the default before the lender can initiate a foreclosure proceeding.
That means that the taxpayer or property owner not only loses the property, but also may owe taxes on the difference between what was paid for the property (the value of the home) and what is owed on the mortgage (but forgiven in the foreclosure action).
If the property owner can’t satisfy the court order within that time frame, the lender, or mortgage holder is permitted to take title to the property.
Foreclosure actions wipe out some of the property owner’s debt, like the original mortgage (taken out at the time of the home purchase), HELOCs, and second mortgages.
The proceeds of the sale go in order to: (1) the lender to satisfy the terms of your mortgage; (2) other holders; and if there is any left (3) to the mortgagor of the property.
These days with the large number of mortgage foreclosures and decline in housing prices, there are more and more situations where property owners will be responsible for taxable income resulting from a foreclosure.
Understanding Your Foreclosure Rights – Glossary Acceleration Clause Most mortgages have acceleration clauses which allow the mortgage holder to declare that the entire debt is due and payable as soon as you default on a payment.
Written claims (proof of money owed under the mortgage): Lenders also are usually required to file statements which itemize the amount the property owner owes under the mortgage.
If there is no insurance protecting the mortgage holder (e.g., PMI) for the difference between what is owed on the property and what it was sold for, a court could enter a deficiency judgment against the property owner.
If the time allowed for the homeowner to cure the default has passed, the mortgage holder will probably give notice of a foreclosure sale.
Deficiency judgments obligate the property owner to repay the difference, and give mortgage holders the right to collect the remainder of the debt owed from any other assets the property owner may have.
If a mortgage does not have an acceleration clause, the lender can begin foreclose proceedings as legally permitted in the state where the property is situated.

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