Getting a new mortgage after a foreclosure can be challenging under certain circumstances. But if you want to buy another home, take heart because it is possible. Generally speaking, you will not be able to obtain a mortgage sooner than two years of a foreclosure. But you will be able to get another mortgage after a foreclosure if you take the right steps to recover from the foreclosure.
How to Get a New Mortgage After Foreclosure
Save up a down payment and shop around for mortgage interest rates. The foreclosure will remain on your credit report for seven years, so your credit may not be that great. Different lenders have different standards. Fannie Mae and Freddie Mac, for instance, have a four to seven year waiting period, while FHA-backed loans have a two to three year waiting period. Veterans Administration loans require a two-year waiting period post-foreclosure.
Don’t be disappointed if you’re initially denied a new mortgage. Instead, examine the reason for the denial and try to shore up that aspect of your credit profile. You may even be able to reduce your lender’s waiting period by showing that the foreclosure was the result of a significant but temporary financial hardship. Demonstrate that you have fully recovered from the foreclosure.
Keep and maintain a foreclosure file. Store all of the foreclosure paperwork and documents relevant to your former mortgage. Keep copies of court and tax documents and correspondence, in this file, too.
Applicants are most often denied mortgage because of their credit score. If you take steps to clean up your credit soon after foreclosure, you will more easily obtain a mortgage later. Rebuilding your credit score is the single biggest step you can take to get a mortgage after a foreclosure. Document the steps you take to rebuild your credit and keep it in your foreclosure file.
Don’t Let a Previous Foreclosure Hold You Back
Losing a property to foreclosure is a significant financial hardship. It can sometimes be difficult to recover from the powerful psychological and financial aspects of a foreclosure. But if you’re ready to purchase another home, don’t let a previous foreclosure hold you back.
The further and further away that you get from the foreclosure, the less effect on your credit will the foreclosure have. Getting a new mortgage after a foreclosure may seem daunting, but over time, you will be in the same credit pool as everyone else.
Avoid non-prime lenders and expensive (high interest rate) loans. Avoid three-year and five-year adjustable rate mortgages (ARMs).
Do not feel rushed into buying another home. Take your time and seek out professional brokers and realtors to assist you.