A foreclosure is one of the most harmful things that can happen to you and your credit report. If you’ve been foreclosed upon, you’ve probably been patiently waiting and checking your credit report, trying to see how much damage has been done...and when you will be able to buy another home.
Believe it or not, there are a number of government sponsored mortgage programs that are more forgiving of past foreclosures than others. In this article we will provide you with the guidelines for these programs so you know when you are ready to get another mortgage!
Qualifying for a conventional home loan after a foreclosure?
Fannie Mae and Freddie Mac are the primary conventional mortgage vehicles for people buying or refinancing. They are usually reserved for higher qualified borrowers and the waiting period or “seasoning” required after a foreclosure is 7 years.
However, both Fannie and Freddie allow for a shorter seasoning period of just 4 years if you are putting at least 20% down and your credit score and recent history meet their standards. The current minimum credit score for Fannie and Freddie is 620 but after a foreclosure you’ll likely need a higher score to get approved unless you’re a putting a good deal of money down on your home purchase.
Keep in mind that after a foreclosure, your credit score will undoubtedly drop, although it’s difficult to say by how much. If your credit score was higher to start with, then you will probably lose more points from a foreclosure. It will be more difficult to open any new lines of credit, and your other interest rates may rise. So it may take more than 4 years to meet the Fannie / Freddie more lofty credit standards.
Qualifying for an FHA Loan After Foreclosure
After a foreclosure, you may be able to obtain an FHA-insured loan after just 3 years. This 3 year seasoning period typically starts on the foreclosure sale date or on the date that a chapter 7 bankruptcy was finalized (discharged). There is one caveat though. If your foreclosed mortgage was a FHA loan then your seasoning period starts after FHA pays a claim to your lender and that can take anywhere from an additional 6 to 12 months.
For an FHA loan, you must also have a credit history and score that meets FHA guidelines. Big banks usually add on to this minimum requirement but some smaller regional direct lenders allow credit scores as low as 580 along with a 12 month history of good payment histories. One other benefit of FHA is that it is a low down payment program of just 3.5%!
Qualifying for a VA Loan after a Foreclosure
Veterans who have been honorably discharged are offered a Veterans Affairs (VA) home loan as a benefit for their service to our country. Veterans who have had a foreclosure are able to get a VA loan after a seasoning period just 2 years. This is not a guideline from the Department of Veterans Affairs, but a generally accepted lender rule so this can vary from lender to lender. Big banks are generally more restrictive than direct lenders.
After a foreclosure, a VA Loan requires at least the following:
- No down payment
- Credit score of 600
- Debt-to-income ratio of 50% or lower
Homesite Mortgage has investors that regularly accept veterans who seek a mortgage after foreclosure. As a nationally approved VA lender, Homesite Mortgage is always ready to help our military veterans find a mortgage after foreclosure. If you need help securing a VA loan, contact one of our VA lenders.
Qualifying for a USDA Loan After Foreclosure
Similar to FHA, the seasoning period for USDA after a foreclosure is 3 years.
If you don’t already know, USDA home loans are insured by the United States Department of Agriculture. Yes, the Department of Agriculture is in the mortgage business. They’re meant to increase economic stability and quality of life in rural areas of the United States. If you are planning to live in a rural area, a USDA loan application is a completely viable way to purchase a mortgage three years after a foreclosure - with a ZERO down payment. The catch is the geographic lending areas for USDA are restrictive and they have a household income cap that is also somewhat restrictive.
Improving FICO and Getting a New Mortgage Loan
Obviously, you can do more to help your situation than wait around for 7 years to have the foreclosure stricken from your record. If you are still in the first few years after your foreclosure, there a few basic things you can do to improve your credit score.
- Checking your credit report
- Paying bills on time
- Credit card utilization rate
You can also hire a credit restoration company to assist you with your overall credit. Homesite Mortgage has partnered with Lexington Law to offer people a cost effective option to getting professional credit guidance. Lexington Law is a law firm and they have assisted thousands of people get their credit standing back on firm footing. Contact one of our licensed mortgage bankers to find out how Homesite Mortgage can make credit restoration affordable and easy!
As a nationally approved VA lender Homesite Mortgage is honored to serve our military veterans. We are also nationally approved by the US Department of Housing and Urban Development to offer FHA loans and by the US Department of Agriculture to offer USDA loans.