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
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
Fannie Mae and Freddie Mac (conventional loans) require a seven-year waiting period (up from 5 years) for re-establishing credit following completion of the foreclosure action (as little as 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. If so, the new mortgage must be used to purchase a principal residence and will require a minimum 10 percent down payment.
Investors Must Wait Longer
And what if you own multiple properties? Well, the foreclosure can affect your other properties as well.
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.
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.