During the recent housing crash, 15 percent -- or 4.8 million Americans borrowers -- lost their homes to foreclosure, according to statistics published by Bloomberg. Rebuilding and rebounding after a financial loss takes time and attention to detail. Once you’ve passed the various lender-instituted waiting periods, you can qualify for a new mortgage if you’ve repaired your credit and pass other lender-generated credit criteria.
General Credit Repair
While waiting for time to pass in order to requalify for a mortgage, start working on rebuilding your credit. Curiously, if your FICO credit score was in the high 500s at the time of foreclosure, it may take you up to three years to start the prequalification process. Pay all your bills on time. Have tax returns and pay stubs showing a steady income for the past two years. Have money in your savings account that’s seasoned, having been in your account for over two months. Have a bank account account holding reserve funds to cover all expenses for several months after buying a home.
Take out two different types of credit vehicles. A car loan, gas card, department store credit card and general use credit card are all different lines of credit. Each is analyzed for on-time payments and credit balances. Don’t borrow up to your credit limit. Most credit agencies like to see you using 25 percent of the credit that’s available to you.
Your debt-to-income level, a measurement of your gross income and what is left after expenses, is scrutinized by a lender. Adjust your living standards by foregoing extra expenses. Reduce your cell phone plans, cable television package and any other expense you can control without jeopardizing your work situation. Forego expensive vacations and high-cost purchases during the re-qualifying period, and spend as little money as possible.
Department of Veterans Affairs
Armed Services veterans qualify for a VA loan two years after a foreclosure. If your defaulted loan was also backed by the VA, you’ll be eligible to apply for a new VA loan after three years, given several actions: pay back what the government lost due to your former foreclosure; get a debt-waiver; prove you can pay a mortgage by repairing bad credit and showing sufficient long-term income. Speak with a VA advisor who'll guide you through the restoration process.
An FHA loan can be applied for three years after a foreclosure. The lender expects a minimum FICO score of 580, but it’s preferable to have a score of 620 or above to take advantage of better down-payment and interest rates. Fannie Mae mortgages can be applied for three to seven years after a foreclosure, and you can qualify to apply for a Freddie Mac loan five to seven years after the foreclosure.
Some lenders offering conventional loans require credit scores in the 700s. You also have to produce a 20 percent down payment to take advantage of the rates offered, in addition to proving wages and income. Prepare to offer two years of income tax returns when applying for a mortgage post-foreclosure and substantiating your income with two years of steady employment.
Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.