Mortgage Loan After a Foreclosure

Having been through a foreclosure is not only devastating emotionally but also financially because of its impact on the borrower’s credit score. How soon after a foreclosure can an individual apply for a loan to buy a property depends on the circumstances of the foreclosure and the type of loan applied for.

Waiting Period: Seven Years

The standard waiting period after a foreclosure is seven years. This is required by Fannie Mae. In addition to the waiting period it is required that the potential borrower has re-established their credit score after the foreclosure. As a side note, a foreclosure stays on the credit history for seven years. Lenders will also take into account a borrower’s employment status as part of their determination of credit risk.

Waiting Period: Three Years

If the foreclosure was the result of documented extenuating circumstances, the Fannie Mae waiting period will only be three years, rather than seven, before you can apply for another mortgage.

Extenuating circumstances are non-recurring events that are beyond your control that resulted in a sudden, significant and prolonged reduction in income, or a catastrophic increase in your financial obligations.

If your foreclosure was caused by such circumstances, you will need documentation supporting your claim in order to apply for a mortgage after three years. Documents could include those that confirm the event, such as a copy of a divorce decree, medical bills and job severance papers. Other types of documents that you could produce include those showing your inability to resolve the problems that caused the event, such as insurance papers or tax returns.

Waiting Period: None

If you are prepared to meet their conditions, some lenders that do not sell their mortgages to Fannie Mae may be prepared to loan you funds soon after a foreclosure.

These lenders likely will require large down payments and high interest rates. Depending on your financial situation, you might need to lower your expectations in terms of what type of home you are looking to buy. A smaller home may, for example, mean that you will need to borrow less, thereby increasing your chances of obtaining a loan and reducing the amount that you will need to repay.

However, the longer you wait before applying for another mortgage, the more time you will have to re-establish your credit score, which could lead to loans with more favorable conditions.


For more information, contact out knowledgeable brokers at Loan People USA.

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