How long after a foreclosure can I get a mortgage?
It may not be as difficult as you think to get a mortgage after foreclosure in Colorado. The waiting period varies depending on the type of loan. For FHA loans it is typically 3 years, conventional loans through Fannie Mae of Freddie Mac are 5 years, and VA loans can be achieved after 2 years. This will be public record, so any title company can pull up this information and give to your mortgage broker or lender.
However, there are some exceptions that can get your qualified without having to wait the entire 3 years.
In this article we will provide helpful information on:
- Getting a mortgage shortly after a foreclosure
- FHA, Conventional, and VA Loans after foreclosure
- What you need to do to get approved after foreclosure
- Short sale vs. Foreclosure
- Rebuilding your credit
Ways to get a mortgage shortly after foreclosure
Using a private / hard money loan
If for some reason you want to buy a home way before that 3 year anniversary, and have at least 35-40% to put down on a home, I would suggest a private money or hard money loan. This is a short term loan of 5 years, however, it would give your foreclosure time to season, and you would be able to refinance into a better loan.
Prove Extenuating Circumstances
If you can prove that the foreclosure was a result of extenuating circumstance then you might be able to get approved for a mortgage without having to wait the full 3 years. Examples of these unfortunate circumstances include:
- Serious Illness / Medical bills
- Significant income loss due to loss of a job
- Natural disasters
FHA Loan requirements following foreclosure
FHA loans are backed by the government and typically require a 20% down payment. A typical minimum credit score is 620. Therefore, to get approved for an FHA loan you will need to do the following:
- Build your credit score up to a minimum of 620
- Save enough money for a 20% down payment
- Wait three years from the date your foreclosed property was sold
Conventional Loans After a Foreclosure
Conventional loans that are backed by Fannie Mae or Freddie Mac typically have a longer waiting period of around 7 years. There are also exceptions to this time period by proving you or your family experienced extenuating circumstances that caused your foreclosure. With both Fannie Mae and Freddie Mac you will need to:
- Wait 5 years after the date the foreclosed property was sold
- Rebuild your credit score to at least 620
- provide documentation of the official date your foreclosure was sold
VA Loans after a foreclosure
VA loans can be a great option for for those who have earned the right to apply by serving in the military. These loans can be achieved with a credit score of 620 and above and in most cases with no down payment. It is possible for someone to be approved for a VA loan following a foreclosure and with less of a waiting period of two years. For those who qualify, a VA loan can be a great option because of their flexible requirements.
What you can do to get approved after foreclosure
Understand the affects on your credit score
A foreclosure will have a negative impact on your credit score for 7 years unless you are able to successfully file a dispute to have it removed. Typically the higher the credit score the more of an impact it will have. A score of 680 will see a drop of around 100 points while a 780 score will get hit by an average of 150 points. Get more information on the full impact on your credit score.
Re-building your credit after foreclosure
Right away it is important to take advantage of the free credit report you are entitled to from the major credit bureaus. Start monitoring it right away. Understand the timeframe for a foreclosure to be cleared from your credit report. The foreclosure will most likely be on your report for 7 years but that does not mean you cannot build your score up to the critical 620 threshold.
As mentioned above, when you go through a foreclosure your credit score will drop quite a bit. Things you need to do to improve your score include:
- Pay all of your bills on time
- Open a low limit credit card and keep the balance under 29%
- Do not take on too much new debt
Understand how your credit score will affect how much your mortgage will cost
If you build up your credit score enough and meet the lender requirements (depending on the type of loan you are applying for) then you need to understand how much your mortgage will cost. Lower credit scores will most likely mean higher interest rates costing you thousands over the life of the mortgage. Therefore, it might make sense to wait until until the foreclosure is cleared from your credit report, giving your a higher credit score, and therefore giving you a much better interest rate.
Can the bank verify your foreclosure?
If you think your foreclosure was mismanaged by the lending bank then you might be able to get the foreclosure cleared from your credit report. If the bank cannot provide all of the correct and required legal documentation you might be able to get the foreclosure removed permanently from your credit report. If you think you have a valid case then consult a law firm specializing in this area. You will need to file disputes with each credit bureau and it needs to be a well documented case. Once you have submitted the disputes then use your free annual credit report monitoring services to keep an eye on the status.
Short Sale vs Foreclosure
There is a difference between a short sale, often regarded as “paid in full for less than the full balance”, and a foreclosure. While they both have a huge negative impact on your credit, the short sale will have a slightly less of an impact. A foreclosure will result in the bank taking back ownership of the property and then bringing it to an auction. A short sale is when the house is sold before the house is foreclosed upon for a lesser amount than what is owed to the bank. Both cases will most likely affect your credit score for 7 years.
Foreclosure as a result of bankruptcy
Getting a mortgage after bankruptcy is similar in some cases since a foreclosure might be the result of the bankruptcy. Re-building your credit score, saving money, and shopping for a loan that works best for you is vital in both cases.
It is possible to get a mortgage shortly after you have experienced a foreclosure. Extenuating circumstances and a hard / private money loan are two ways to get one before the required waiting periods required by most lending programs. For FHA, Conventional, or VA loans you will be looking at a 2 - 5 year waiting period as long as you meet that programs other requirements.