how to buy a house with a foreclosure on credit

You can qualify for a Veteran’s Administration loan if you’re an active or retired member of the military, even if you have a on your credit report.
When your credit score is still low due to your foreclosure 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.
The Federal Housing Administration allows banks to issue FHA-insured loans to borrowers three years after a foreclosure or a short sale in which the borrower was in default.
Mortgage giants Fannie Mae and Freddie Mac, for example, require defaulters to wait five years — and have a minimum credit score of 680 and put 10% down — before they can purchase a home again.
Tony and Ginger Read, who live with their three kids outside of Boise, Idaho, took four years to rebuild their credit after they sold their home in a 2008 short sale.
If defaulters show that extenuating circumstances caused the foreclosure — such as a health issue that prevented them from working, a layoff, a divorce or other one-time event — the wait may be reduced to three years.
Since the housing bubble burst, 4.8 million borrowers have lost their homes to foreclosure, and another 2.2 million gave them up in short sales, according to RealtyTrac.
Tony now has a job supervising a sand and water pumping crew for the fracking industry and the couple’s credit score has regained more than half of what it lost.
If they don’t meet that criteria the wait is seven years, at which point the foreclosure is expunged from a person’s credit report.
After the foreclosure, Susan’s credit score had taken a 70-point hit; Dave’s score fell even further.
"[After bankruptcy], foreclosure is one of the things that hits your credit score the hardest," said Anthony Sprauve, a spokesman for FICO.
Scores suffer less if you pay at least the minimum on all your other bills on time and only allow your mortgage payments to go unpaid, said Jon Maddux, the CEO of, which offers advice to defaulting mortgage borrowers.
Susan Edwards and her husband, Dave, lost their Palmdale, Calif., home in 2010 after Susan’s severe arthritis made it impossible for her to work her medical device sales job.
VA-insured loans can be obtained just two years after a foreclosure, according to the Mike Frueh, director of the VA’s Loan Guaranty Program.
The new extenuating circumstances policy, to remain in place for three years, would have been a boon to Russell and Michelle Poland, who wound up in bankruptcy and foreclosure in 2010 after the recession undercut sales at their restaurant.
They found other jobs but had no shot at a normal loan for three years, so they wound up paying $10,000 in upfront fees and making a 35% down payment in late 2011 to obtain a 30-year mortgage at 10.99% interest.
Orange County mortgage broker Jeff Lazerson said he would have been able to get loans for dozens of customers shut out of the recovering housing market had the easier terms been in place these past few years.
Fannie and Freddie require borrowers to wait seven years after a foreclosure unless there are extenuating circumstances, in which case the wait is three years.
It also recently changed its rules so borrowers must pay annual premiums on FHA mortgage insurance for at least 11 years if they want its backing for a home loan.
To qualify for the break, borrowers must show that their foreclosure or bankruptcy was caused by external economic factors, reducing their income by 20% or more for six months.
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.
The lender and the public are protected by these buyers paying for mortgage insurance, and their re-introduction to the housing market in a new economy will allow them to re-establish a long-term credit track record and keep the housing market moving.
When an underwriter can see that home buyers have been responsible with credit in every instance of their lives except for under one unforeseen loss of income or spouse, there is great reason to believe that these people, under the newer, more restrictive lending guidelines, are a good credit risk.
As a nationwide direct lender I admit it is much more difficult to receive mortgage approvals than it was prior to 2008 however; although you will not have a prime rate I have procured financing on FHA mortgages with 580 credit scores, with lates on tradelines other than mortgage, with mortgage insurance that drops after 20% equity (minimum 5 years).
Home buyers with foreclosures and bankruptcies on their records need to show a consistent history of pristine credit since the time of their foreclosure.
The waiting period for a new FHA loan is typically three years unless you can prove to the lender that the foreclosure occurred through no fault of your own.
The Department of Housing and Urban Development wants to see “full recovery” from the event that caused the foreclosure, so during the waiting period you’ll need to keep up with rent and bill payments.
To obtain a new mortgage with a foreclosure on your credit record is challenging, and most lenders have a waiting period.
In other words, if you are pursuing a conventional loan, the lender will want to make sure that the payments on the home you want to purchase won’t take up more than 33 percent of your after-tax income.
I was wondering if there is any way that is just as effective where I can start building my credit from nothing? My family has had many financial issues, including foreclosure and bankruptcy, so I don’t want to end up in the same situation and I want to be careful with my finances.
At least one conventional lender is offering a mortgage loan one day out of foreclosure for Arizona and California properties only.
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.
If your defaulted loan was also backed by the VA, you’ll be eligible to apply for a new VA loan after three years, given several actions: pay back what the government lost due to your former foreclosure; get a debt-waiver; prove you can pay a mortgage by repairing bad credit and showing sufficient long-term income.
Curiously, if your FICO credit score was in the high 500s at the time of foreclosure, it may take you up to three years to start the prequalification process.
Jumbo Jungle Foreclosure Haunts Next Home Purchase Affluent home buyers attempting to get back into after defaulting on their home loan are finding that few lenders are willing to work with them.
Affluent home buyers attempting to get back into real estate after defaulting on their home loan are finding that few lenders are willing to work with them.
Fannie Mae discovered that the credit bureaus are so inaccurate with their data, that they were posting short sales as foreclosures on your credit report in error! They were putting you in a penalty box for 7 years and devastating your credit.
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.
•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.
Then the first step is to understand your current credit score and all the reasons it is considered "bad." Are there inaccuracies? Are "closed" credit lines still "open?" Does a line item appear like it doesn't belong to you? You'd be surprised how many credit scores are calculated with incorrect, outdated or straight up misinformation.
Before we dive deep into credit scores it's critical to understand that while credit scores are a major piece of the loan puzzle, there are many others such as current employment status and salary that are also factored into the equation.
In fact, it's possible to obtain a home loan with a credit score of about 650, which is right around the magic number (give or take) most lenders today will consider in addition to the other factors already mentioned.
If your credit score is still bad, and the FHA option isn't, well, an option, finding an individual to "co-sign" the loan is also a possibility, provided that person is willing to share the financial consequences should you default on the loan.
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.
Beyond that, the borrower must also prove that his or her credit was satisfactory before the economic event, meaning that his or her credit report was free from late payments or other major derogatory credit issues, and that since the foreclosure, satisfactory credit has been re-established over the past 12 months.
First, they must prove that the foreclosure or short sale was caused by what the FHA calls an "economic event" — a loss of income or employment, or a combination of both, that is beyond the control of the borrower.
The Federal Housing Authority has announced it is shortening the mandatory waiting periods for homeowners with a black mark on their credit, such as a short sale, deed-in-lieu, foreclosure or even bankruptcy, to buy again through an FHA loan.
Second, they must prove that they have "fully recovered" from the economic event that led to the foreclosure, short sale or bankruptcy.
Third, borrowers must complete at least one hour of one-on-one housing counseling from a Department of Housing and Urban Development-approved counselor at least 30 days but no more than six months before submitting the application for an FHA loan.
"I think it gives a real second chance to people," said Stuart Vener, a national real estate and financial consultant and president of the Wilshire Holding Group, a firm that helps underwater homeowners avoid foreclosure.
So if a borrower underwent a foreclosure due to a job loss, the borrower must then prove that he or she is employed and able to afford loan payments once again.
Fannie Mae’s automated underwriting system is rejecting many people who should be able to qualify in as little as two years after a short sale, said Terry Clemans, executive director of the Chicago-based National Consumer Reporting Association, whose members prepare credit reports used by lenders.
Even as banks are holding borrowers to stricter mortgage standards, the improving job market is lifting incomes and helping families repair credit scores, expanding the pool of eligible buyers and providing additional firepower to the housing recovery.
Because the credit industry doesn’t have a specific code for a short sale, lenders are forced to report them as foreclosures, which delays borrowers from getting Fannie Mae and Freddie Mac mortgages, Clemans said.
Buyers such as the Schmitts who rebounded from a foreclosure or short sale made about 6 percent of the $3.3 billion loans Veterans United completed last year, the company said.
George Albright, a 44-year-old videographer in New Port Richey, Florida with a 720 credit score and a 20 percent down payment, has been blocked by the underwriting systems of Fannie Mae and Freddie Mac, according to his mortgage broker, Pam Marron.
As the economy has recovered from the longest recession since the Great Depression, Americans have lifted their credit scores by paying off credit cards, car loans and other debts, said Joanne Gaskin, product management director for scores at FICO, which measures on a scale that ranges from 300 to 850 and is crucial in determining access to credit.
“We started with a clean slate,” said Schmitt, who bought a $75,000 three-bedroom property they had been renting with a mortgage from Veterans United Home Loans, a company that also provided him with free credit counseling.
While underwriting standards remain restrictive compared to the real-estate boom, they’re easing as lenders approve loans for borrowers with lower credit scores.
Last month, after moving with his family to his Missouri hometown, he got a Veterans Administration mortgage that lets borrowers buy property just two years after a foreclosure.
The Schmitts are at the vanguard of potential buyers that were locked out of owning homes after 15 percent of U.S. borrowers lost their properties since the start of the foreclosure crisis.
As more buyers are able to access credit, competition for a shrinking supply of homes is driving up prices.
A borrower without a bankruptcy or foreclosure with a 600 FICO would receive an interest rate of 5.875% (based on the above) and pay a monthly payment of $1183 on a $200,000 amortized loan.
The following numbers are in comparison to the interest rate a borrower with a 600 FICO score would pay who did not file bankruptcy or lost a previous home to foreclosure.
You can see that filing bankruptcy or having a foreclosure on your record, even with a FICO score of 600, results in an increase in a mortgage payment of $215 over that of a borrower without a bankruptcy or foreclosure.
I spoke to Evelyne Jamet at Vitek Mortgage about the differences among FICO scores and how that relates to the interest rate borrowers are charged.
Evelyne Jamet handles loans only in New Mexico, Colorado and California and suggests borrowers with bad credit contact a local FHA mortgage broker.

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