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7 Tips on How to Get a Mortgage After a Foreclosure

People who have lost a house to foreclosure sometimes wonder if they will ever be able to buy a home again. The answer is a resounding 'yes'! It is easier today than ever to purchase a home after a foreclosure. Qualifying for a home loan after a short sale, foreclosure or bankruptcy has never been more possible.

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Here is what you need to know before you buy another home or refinance a mortgage after foreclosure, short sale or loan default:

#1 Wait

After a foreclosure, you will indeed need to wait for a period of time before you apply for another mortgage. FHA, Fannie Mae, Freddie Mac and several subprime lenders all requires a minimum of 24 months before they will consider approving a home loan after a foreclosure. How long you need to wait depends upon the loan company. Non-prime and FHA-backed lenders generally will make you wait three years to obtain a new loan, and most other lenders follow the same guideline.

There are some lenders who may have shorter waiting periods, but some of these lenders will offer unfavorable financing terms. You will pay a higher interest rate and may have an adjustable rate as short as one year. (When shopping, ask loan officers to show you the pricing for 1/1, 3/1, 5/1, 7/1 and 10/1 hybrid loan terms) Tip: The waiting period does not start until the foreclosure is complete. The clock does not start when you simply move out of the house.

#2 Repair Credit

Some buyers only have the foreclosure as the only negative mark on their credit. Such buyers can fix their credit faster than buyers who have other credit problems. In either case, the buyer needs to get their credit in order before they apply for another mortgage. Given that you will need to wait around three years to get another mortgage, this is a great time to get your credit clean. So, when you are most of the way through your waiting period, your credit will be cleaned up and you will be ready for a new home loan.

While the foreclosure stays on your record for seven years, the negative impact of it fades after a few years. You can help minimize the impact by paying your other bills and credit cards on time. Remember, the foreclosure on your credit report is simply one negative item. By itself, it does not do as much damage as several other negative marks. Another thing to watch out for is high current debt relative to your income.

Keep your credit card debt under control ideally less than 20% of your total credit limit. If you want to get a low down payment loan, you will want to have a credit score of at least 580. If you have a credit score of 550, you will need to make a 10% down payment. > Can Credit Repair Help People Get Approved for a Mortgage When Buying a Home?

#3 Have a Down Payment

People who lost a home to foreclosure in the market crash of 2008 may be surprised to learn that higher down payment are sometimes required today. Most lenders today require at least 3.5% down today, such as FHA-approved lenders. Conventional lenders usually require 5% down.

#4 Get Pre-Approved Before You Start Shopping

If you have a foreclosure, you will want to have a pre-approval letter from a lender before you start looking at any houses. That way you know what you are likely to qualify for and realtors know that you can get a mortgage. This essential step will save everyone a great deal of time. > How to Get Pre-Qualified Home Mortgage

#5 Plan Ahead

You may think that you are ready to get a mortgage, but there may still be some things in your background that are holding you up. Well before you actually want to buy a home, you would be wise to sit down with a finance or mortgage professional and see where things stand as far as getting you approved for financing again.

#6 Don't Over Apply for Credit

If you are planning to apply for a mortgage a few years after you lost your home, you should hold off on applying for car loans and a bunch of credit cards. Lenders will be carefully looking at your credit history to determine if you are a good risk or not. If they see you taking on a lot of new debt, this is not a good sign.

#7 Apply for an FHA Program

Without a doubt, FHA are the go-to program because they are arguably the most forgiving of foreclosures. FHA is applauded by lenders across the country because they insure home loans after a bankruptcy, typically after 2-years if the borrower meets the eligibility requirements.

To qualify, you only have to wait a few years from when the foreclosure was finalized. So before you dismiss the possibilities and not apply for a FHA loan, get educated. You may also qualify sooner than three years if you can show there were circumstances beyond your control that led to the financial difficulty:

  • Serious illness or death in family
  • Divorce
  • Job loss

Something to Think About

Getting a mortgage after a foreclosure is not as difficult as it used to be. Many people think that you cannot get a loan for seven years after a foreclosure or bankruptcy but this is not the case. You can get a mortgage within three years and sometimes less. What you must remember is to keep your credit profile as clean as possible, other than that single foreclosure. If you do that and wait approximately three years from the foreclosure, many lenders will be willing to work with you. Written by James Swift

Recent Articles We Suggest:
How to Refinance a Mortgage after a Bankruptcy
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