I lost my home: Buying a home after foreclosure
In this article:
Today you may be wondering if buying a home after foreclosure is possible. He is.
- You will have a waiting period for top-notch financing
- You can buy earlier with private lenders or in portfolio
- Expect to pay more if you finance soon after losing a home
Check your credit and determine your options – conventional, government, non-preferred and more – available to you.
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You’re not alone
If you’ve lost your home in recent years, you are not alone. Between 2006 and 2014, more than 9.2 million Americans lost their homes due to foreclosures, short sales or deeds in lieu of foreclosure. But that was then, and it is now.
It’s worth getting the facts and exploring your choices. If you can prove that you have rebounded financially, you have a better chance of becoming a boomerang buyer.
What to expect next time
Be prepared for a steeper climb ahead, says Rick sharga, executive vice president of Carrington Mortgage Holdings.
“Foreclosure, short sale or deeds in lieu of foreclosure can make it very difficult for a consumer to obtain the financing they need to buy another home. These items dramatically lower your FICO credit score, ”he says. “And they stay on your file for up to seven years.”
Past foreclosures make you statistically more likely to default on a loan. And lenders don’t like the added risk.
“Expect to pay a higher interest rate and down payment,” he notes. “You may also need several months of cash reserves to qualify for a loan. “
Wait for the hour
Many lenders require a minimum waiting period after foreclosure before they can apply for a new mortgage:
- three years for FHA loans
- seven years for Fannie Mae / Freddie Mac loans
- two years for Veterans Affairs loans
- three years for USDA loans
- other lenders have different waiting periods.
But you may be able to shorten some of that time. This requires proving that the foreclosure was due to a qualifying difficulty. A medical disaster, layoff, or business bankruptcy may qualify. This can get you a Fannie Mae or Freddie Mac loan in as little as three years. And it can reduce the VA or FHA loan waiting period to just one year.
Document your struggles with receipts for paid hospital bills, news articles detailing the shutdown of your business, or a police report showing you were the victim of a crime, for example. Write a letter explaining that what happened was beyond your control and why it will not happen again.
If your foreclosure was over eight years ago, things should be better.
“In that case, there shouldn’t be any additional complexity in financing your home,” says Chris lewis with Angel Oak home loans. “You will just qualify for the same level of income, assets, credit and property to qualify for traditional mortgage financing. “
I lost my house and now I want to buy again – what should I do?
Buying a home after foreclosure with an FHA, Freddie Mac, Fannie Mae, VA, or USDA mortgage means sticking to their rules and waiting times. Even then, you could still be turned down.
“But there are other choices if you’ve started repairing your credit,” Sharga explains. “For example, loans may be available from private lenders. Or lenders who offer non-senior mortgages might be an option. “
He says that these loans are likely to have much higher interest rates than loans to those with excellent credit. “And they may require more down payments or higher cash reserves. More documentation might also be needed.
Private and non-preferred mortgage lenders can cost you more. But borrowing from them can also help you rebuild your credit. “That way you can refinance later with a cheaper conventional loan,” Sharga adds.
Ways to help your cause
Want to increase your chances of getting a mortgage? Sharga suggests these tips:
- Make all credit payments on time. “It shows a good payment history. “
- Pay off the debt. This improves your debt to income ratio (DTI), which lenders prefer to be 43% or less. “Try to keep credit balances below 30% of your credit limit for each account. “
- Save as much as you can for the down payment. “Also try to save at least three months of your own funds as cash reserves. “-
- Create a letter explaining the difficulties you have endured.
- Contact a variety of lenders and ask them what they need.
- Be honest with lenders about your credit and past problems.
- Monitor your credit for six to 12 months before applying for a loan. You can access your credit report for free once a year at AnnualCreditReport.com.
- Know what kind of documentation you will need. “Often a two-year professional history and at least two months of bank statements are required. Make sure you have all the documents you need in order.
- Don’t open new credit or auto loan accounts immediately before applying for a mortgage.
- Consider buying a cheaper house. “This will ensure that you can make payments more easily and build equity faster. “
You will want to convince lenders that you can become a successful homeowner. Preparing to buy a home after foreclosure will help you better manage your debt and be in good financial health.
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