How Long After Foreclosure Can I Purchase a Home?

Timely mortgage Q&A: “How long after foreclosure can I purchase a home?”

If you’ve recently experienced foreclosure, you may be wondering when you’ll be able to purchase a new home.

While it may not be in your immediate sights, there’s probably a good chance you’ll want to get back on track and get into a new home once you do so.

Now when I say purchase a home, I mean doing so with the aid of a mortgage; obviously you can buy a house with cash at any time if you’ve got it on hand.

Foreclosure Remains on Your Credit Report for Seven Years

A foreclosure will remain on your credit report for seven years, which can be a total drag both on your credit score and your ability to obtain a mortgage.

However, some banks and bad credit lenders will allow borrowers to purchase a home within just a couple years of foreclosure, depending on your credit score and recent credit history.

It’s imperative to rebuild your credit as soon as possible after foreclosure to increase your chances of being approved for a mortgage post-foreclosure.

That means doing everything in your power to improve and maintain a healthy credit score, including paying all other bills on time and paying down high balances if you’ve got them.

FHA Waiting Period Three Years

The FHA allows borrowers to purchase a home just three years after a foreclosure notice assuming you’ve kept credit clean since the negative action; for VA loans it’s a waiting period of two years.

Fannie Mae and Freddie Mac require a five-year time period (up from four years) for re-establishing credit following completion of the foreclosure action (two years for a short sale).

The time period can be shortened to three years if you can prove extenuating circumstances tied to the foreclosure such as illness or job loss.

Also note that the new mortgage used to purchase a principal residence will require a minimum 10 percent down payment and a minimum credit score of 680.

Investors Must Wait Longer

And what if you own multiple properties?  Well, the foreclosure can affect your other properties as well.

Cash out refinancing or mortgages tied to second homes and investment properties require seven years after the foreclosure action. This has to do with the heightened risk tied to such transactions.

It’ll be interesting going forward to see how banks and mortgage lenders treat foreclosure in terms of subsequent mortgage loan approvals.

You’d have to suspect that they’ll ease guidelines somewhat to accommodate the millions of new Americans that have experienced foreclosure in recent years.

At the same time, guidelines may remain elevated as a result of the mortgage crisis, so only time will tell how it all pans out.

Be sure to speak with your loan officer or mortgage broker to get the latest on the rules, as they can and do change often, and vary widely amongst lenders.

Tip: Even if you can get a mortgage relatively soon after foreclosure, the terms likely won’t be as favorable as a result.  For example, you’ll probably pay a higher mortgage rate, so keep that in mind.

(photo: aarongeller)