Getting A Mortgage After Foreclosure

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Was your home recently foreclosed? If you dream of owning a home again but are feeling down on your luck, there’s hope. By taking the right steps and doing your research, it’s possible to get a mortgage after foreclosure without having to wait for an extended period to be eligible again. But before you apply, it’s vital to understand the waiting periods and what actions you should take to prepare for a new home loan. Follow this guide to get started. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

What is Mortgage Foreclosure?

In short, a mortgage foreclosure involves the lender taking possession of the property once the home loan has been delinquent for several months. Foreclosure proceedings generally start between three and six months after the first missed payment unless the borrower reaches out to the lender to make other arrangements. After recouping the property, the lender will generally sell it to recover at least a portion of what’s owed. 

How Mortgage Foreclosures Affect Home Ownership

Unfortunately, mortgage foreclosures can make it challenging to pursue your home ownership dreams in the future due to the impact they have on your credit score. They linger on your credit report for up to seven years, and the initial drop in your credit score can be drastic. The good news is your score will start to rebound as time progresses, assuming you properly manage all your other outstanding debt obligations. 

How Long is the Waiting Period After Foreclosure?

In most instances, you’ll need to undergo a waiting period before you can qualify for a new home loan. Below are the waiting periods by loan type. 

Fannie Mae and Freddie Mac Loans

Fannie Mae and Freddie Mac conventional loans come with waiting periods of up to seven years. However, you may be eligible for a shorter waiting period of just three years if the foreclosure was caused by an illness, termination of employment or adverse credit reporting. 

FHA Loans

The waiting period for FHA loans, which are backed by the U.S. Federal Housing Administration, is three years from the date that the sale of the foreclosed home is complete. It’s possible to qualify for a reduced waiting period in certain circumstances, though.

VA Loans

If you’re currently enrolled in the armed forces, you’re subject to a waiting period of two years per the U.S. Department of Veterans Affairs (VA). 

USDA Loans

USDA loans, which are backed by the U.S. Department of Agriculture, also have a waiting period of three years following a foreclosure. 

Tips for Getting a Mortgage After Foreclosure

Even if a recent foreclosure wreaked havoc on your credit score and overall financial health, you don’t have to give up on your dreams of owning another home. Instead, take these actions to help increase your approval odds when you’re ready to purchase again. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

Review Your Credit Report

Visit AnnualCreditReport.com and request free copies of your credit reports from the three major credit bureaus – Experian, TransUnion and Equifax. Review each page of the reports and highlight past-due or collection accounts. Then, make a plan to bring past-due accounts current, and reach out to your lenders or creditors to negotiate a pay-for-delete arrangement for any collection accounts. Also, make a note of any errors you find and file a dispute with the appropriate credit reporting agency promptly to have the incorrect information removed. 

Improve Your Credit Score

To improve and raise your credit score, you need to know how it’s calculated. The FICO score, which is used by 90 percent of lenders and creditors to make lending decisions, is made up of five components: 

  • Payment history (35 percent) 
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • Credit mix (10 percent)
  • New credit (10 percent)

You can give your credit score a boost by making timely payments each month since payment history is the largest factor in the credit scoring equation. Also, bring any past due accounts current or work with creditors to come up with a payment arrangement and avoid adverse credit reporting. 

Other ways to improve your credit score include refraining from closing old credit accounts to avoid shortening your credit age and maintaining a profile of both revolving and installment (i.e., loans) accounts. Plus, you should only apply for new credit as needed since each application you apply for and submits results in a hard credit history that can drop your credit score by three to five months. And too many hard inquiries in a short period are often frowned upon by creditors and lenders. 

Reduce Your Debt

It’s also best to keep balances on revolving accounts (i.e., credit cards) at or below 30 percent – 10 percent is even more ideal. So, if you have three credit cards with $1,500 limits, try to keep the balances at or below $1,350. 

Re-establish Income

Creditworthiness plays an important role in whether you’ll qualify for a mortgage, as it shows lenders how you handle debt obligations. They also want to know that you have the means to afford the monthly mortgage payments, which is why it’s vital to have a steady source of income from a stable job. 

Save What You Can

It’s also likely that you’ll need reserves when applying for a mortgage after foreclosure. So, revisit your spending plan and identify ways to free up funds to stow away in your emergency fund. That way, you’ll have a sizable amount saved when it’s time to apply. 

Find a Lender Based on Your Needs

Do your homework to identify lenders that offer the type of home loan you’re considering. They should also be open to working with borrowers with past foreclosures and have the experience necessary to navigate challenges that may come up during the underwriting process. 

Get a Shorter Waiting Period for a Mortgage 

Although most traditional home loan products have lengthy waiting periods, you may be able to get approved sooner. For example, consider a Portfolio Select Home Loan from Angel Oak Home Loans with a waiting period of just one year for foreclosures to get you into your next home sooner than later. Home loans between $250,000 and $2.5 million are available. Or you can use the loan proceeds to refinance an existing mortgage. 

Angel Oak Home Loans also offers Bank Statement Home Loans. They are available to self-employed borrowers who want to use personal or business bank statements to qualify for a mortgage. Loan amounts range from $150,000 to $3 million, and this type of mortgage only requires a two-year waiting period for foreclosures. 

If neither of these options works for you, you can also check out the assortment of traditional home loan products. They include conventional home loans, FHA home loans, USDA home loans and VA home loans. Or you can explore the Investor Cash Flow Loan if you’re a real estate investor wanting to expand your portfolio of properties

So, whether you’ve recently recovered from a credit event or want to explore other options, check out the funding solutions this innovative lender has to offer. Submit an online inquiry today to learn more.

Angel Oak

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All data provided by the Home Mortgage Disclosure Act, at cfpb.gov updated Dec, 19
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