Mortgage lenders only preapprove for a mortgage loan those customers who are most likely to make their loan payments on time each month. They avoid borrowers who show signs of financial distress or have a history of paying their bills late, or skipping them entirely. This is why you will not be able to earn preapproval for another mortgage loan while you are going through an existing foreclosure.
Time frames differ, but most lenders and mortgage insurers require you to wait between two and seven years years after foreclosure before applying for another mortgage loan. The Federal Housing Administration, which insures mortgage loans, only requires buyers to wait three years after a foreclosure before they can apply for a new FHA loan. The U.S. Department of Agriculture's housing program requires buyers to wait three years also, while borrowers applying for a loan insured by the U.S. Department of Veterans Affairs must wait two years. Freddie Mac and Fannie Mae, which own or guarantee a sizable chunk of all mortgage loans, require borrowers to wait for seven years after a foreclosure before they can apply for a loan owned or guaranteed by them.
The waiting periods aren't as certain if you're seeking preapproval for a loan that isn't insured by the federal government. Still, most lenders will make you wait at least three years before they'll preapprove you for a new loan. A foreclosure will remain on your credit report for seven years. Some lenders won't preapprove borrowers until the seven years pass. You'll have to call several lenders to determine if any are willing to preapprove you for a mortgage loan before your foreclosure drops off your credit report.
Lenders rely heavily on your three-digit credit score when determining whether to give you a mortgage. Most lenders consider a score of 740 or higher on the FICO scale to be an excellent one. But you won't have a score this high after a foreclosure. Fair Isaac, the creators of the FICO credit score, say that a foreclosure will drop your credit score by 85 to 160 points. If your score is too low because of a foreclosure, you'll struggle to gain preapproval. All lenders are different, but you won't, for instance, be able to qualify for an FHA-insured loan if your score is under that 500 mark.
Patience is your greatest tool after a foreclosure. You can rebuild your damaged credit score. To do so, you'll have to pay all your bills on time and eliminate as much of your credit card debt as possible. This takes time; don't expect your credit scores to start to rise until at least a year or so after your foreclosure. If you can show a new history of paying your bills on time and managing your credit wisely, you might persuade a lender to preapprove you for a mortgage loan even before that foreclosure drops off your credit report. If you have assets, you may be able to get a mortgage from your local credit union even before the seven years are up.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.