Can I Get a Mortgage After a Foreclosure?
Banks used to view foreclosures as a serious stain on your financial record, a mark of irresponsibility, and a near automatic denial until seven years had passed. These days, banks do understand that foreclosure can happen to the best of us. Not long ago, for one reason or another, a large percentage of homeowners could no longer afford their homes and attempted to sell. But faced with a housing market where they couldn’t sell, a short sale or a foreclosure was the only option. Now these buyers have rebounded in new careers, understand the risks of homeownership better than first time buyers, and are hoping to own again.
Is it Possible?
Once you’ve finished the foreclosure proceedings and waited a few years, it is possible to begin again. Conventional, private mortgage programs may have stricter requirements, such as higher income, higher credit scores, and lower debt to income ratios, and meeting those requirements after a foreclosure may take a few years. There are several government programs that you can qualify for after a foreclosure, and after you’ve gone through the waiting period.
Steps You’ll Need to Take
When your home foreclosed, your credit score took a big hit, and most likely, your home loan wasn’t the only struggle financially, so your score may have gone down even more. A drop of 100-150 points is possible, which can take a good score of 700 down to a score of 550, which is below the threshold to get approved for a mortgage. In the time following your foreclosure, work on cleaning up your credit as much as possible. Make sure you have no new blemishes on your credit report other than the foreclosure. Pay down credit card debt, or better yet, eliminate it. Once your balance is less than 30% of your limit, you’ll see a boost in your score. Don’t be tempted to “spread your debt out” by applying for additional credit. Your debt to income ratio can actually be more important than your actual score, so the lower your total debt, the better.
Once you’ve cleaned up what you owe, it’s time to make sure you’re building your nest egg back up. Lenders will want to see that you are aware of and prepared for circumstances that might impact your ability to pay.
Circumstances to Prepare For
First, be prepared to wait. The clock starts ticking from the date your foreclosure was finalized, not the date it began. While the standard waiting period is seven years, it is possible to cut that waiting period down to three years if you can prove extenuating circumstances that caused the foreclosure, and the resolution of those circumstances.
Most likely, you’ll be looking at a higher interest rate and a higher down payment. When looking at mortgage calculators, be prepared for banks to ask you to prove your financial stability and readiness to be back in the housing market.
While most realtors are happy to work with buyers who know all the realities of home ownership, it’s helpful to have your pre approval taken care of prior to beginning your home search. This will assure your realtor that you are truly ready.
Having a foreclosure on your record can feel devastating, but that doesn’t mean you will never own a home again. When you’re ready to find a house to call home, contact our office to speak with one of our real estate professionals. We have a lot of great houses to show you in your price range, and we’re excited to assist you in your road to home ownership again.