January 23, 2020
Can I Own a Home After a Foreclosure?
If you have gone through a foreclosure, you are probably wondering if it will ever be possible for you to buy another house. This concern is understandable because homeownership is a central part of the American dream. When you own your own home, you are able to build equity and have something that you can pass on to your children.
It’s good to look at this topic from a realistic standpoint. You must accept that your credit will be negatively affected after a foreclosure. However, it is possible that you may qualify for another mortgage in the future. There are several factors that come into play when determining how long you must wait before you qualify for another mortgage. The two primary factors are the type of lender you want to get a loan from and what your financial situation is at the time of your requesting a loan.
Take a Look at FHA Loans
The Federal Housing Administration offers loans to medium and low-income borrowers. You might qualify for these loans even though you have a small down payment and a less-than-perfect credit score. As of 2020, you can borrow up to 96.5% of your home’s value via an FHA loan. This means that your down payment may only need to be 3.5%.
You need a minimum credit score of 580 to qualify. If your credit score drops because of a foreclosure, for example, to between 500 and 579, you can still get an FHA loan if you are able to make a 10% down payment.
All these factors make FHA mortgage loans attractive to individuals who have had a foreclosure. To qualify for the loan, you will have to wait a minimum of three years from the date your previous home was sold in the foreclosure. If the home that was foreclosed on was purchased with an FHA loan, then you will have to wait at least three years from the date FHA paid the previous lender on its claim.
Conventional Private Lenders and Fannie Mae and Freddie Mac Loans Post Foreclosure
You may qualify for a loan from Fannie Mae and Freddie Mac after a foreclosure, but the waiting time is at least seven years. There are some ways to lower the waiting time, such as proving that the foreclosure happened because of extenuating circumstances.
If you use private lenders, it can take as little as two years after your foreclosure to qualify for a loan. Conventional private lenders may be willing to ignore the foreclosure if you can put a larger down payment, maybe up to 25% or more. You may also have to accept a higher interest rate.
Regardless of the waiting periods that lenders impose, it’s important for you to establish good credit in the days following your foreclosure. Having your home foreclosed on can feel like a major financial setback. However, it does not have to mean the end of your dreams of homeownership. The sooner you take steps to rebuild your credit and the more you learn about the lending options available to you, the quicker you will be back on the path to home ownership.