Can You Get A Loan After Foreclosure?
There’s some great news out there for those that have been asking themselves, can you get a loan after foreclosure. Property loan foreclosures in the United States dropped to a ten-year low back in 2016. The number of people forced off their property fell by 14 percent from 2015 and 70 percent from the peak in 2006.
Even though loan foreclosures are less common, there are still plenty of people out there who lost their homes during the Great Recession who haven’t yet taken the plunge and purchased a new home.
If you’re one of those people, and you’ve been working to get your finances and life back on track since losing your home, then we have something to tell you: You can still get a loan after foreclosure.
In fact, there are programs designed to help people just like you get back into a house when they’re ready.
Have you been thinking about buying a home but are missing the confidence to apply for a loan after foreclosure?
Here are some programs that may be able to help:
When Can I Apply for a Mortgage
Lenders enforce a waiting period on borrowers who’ve undergone significant credit issues like a loan foreclosure and bankruptcy.
If you’re hoping to get a new mortgage from a traditional lender, you’ll need to wait five to seven years.
But big banks aren’t the only way to apply for a loan after foreclosure.
In fact, there’s a significant number of government programs available at the federal and state level designed to help people get into homes. Certain government lending programs like FHA allow extenuating circumstances and will make exceptions for financial hardship.
More importantly, they often have shorter waiting periods than conventional lenders.
Here’s how long government departments force you to wait after a serious credit event:
- U.S. Department of Veterans: 2 years
- U.S Department of Agriculture: 3 years
- Federal Housing Administration: 1-3 years
Better yet, these agencies don’t stick to the two-to-three year wait period. If your loan foreclosure was the result of financial hardship, particularly one caused by exceptional circumstances, and you can prove you’ve recovered, then you may be able to apply earlier.
Here are a few examples of significant financial hardship:
- Health problems
- Job loss
Losing your home because you bought outside your means or because you were crippled by credit card debt doesn’t qualify, unless one of the above hardships was the cause of the debt.
5 Ways to Get a Loan After Foreclosure
Securing a loan after foreclosure isn’t impossible. It requires a wait and proof that you have financially recovered from the event causing the loan foreclosure, but there are five ways you can get a loan after foreclosure and become a homeowner again.
1. Conventional Lenders
Conventional lenders are often the first port of call if you have a long-standing relationship with a bank. However, your success rate depends on each lender’s policies and your recent financial past. In addition, some lenders require a conventional loan waiting period after foreclosure
Conventional lenders aren’t as lenient as government programs. In fact, some may rule out borrowers with loan foreclosures on their record altogether. Additionally, there might be significantly higher conventional loan down payment requirements or submit to a higher conventional loan rates.
The bottom line is to avoid ruling out a conventional mortgage after foreclosure because there are still deals to be had. Some conventional mortgages come with fewer restrictions than government loans and better terms than subprime lenders.
2. FHA Home Loans
Federal Housing Administration (FHA) home loans are mortgages designed to help people get back into homes. The program is an old one: it was created to help Americans buy new homes after millions of families lost their property during the 1930s.
The program keeps the housing marketing moving even when money is hard to get by making loans accessible to everyone – not just those able to scrape together a 20% down payment.
Here’s are just a few FHA guidelines you need to secure an FHA loan after foreclosure:
- Two years of full-time employment with the same employer
- Valid Social Security Number
- 3.5% down payment on the home
- Minimum credit score of 580 for 3.5% down payment
The property itself also needs to qualify:
- Approved by an FHA-approved appraiser
- Total mortgage plus taxes must cost less than 31% of gross monthly income
- Total debt (mortgage and all monthly debt) must be less than 43% of gross income
3. USDA Home Loans
Did you know the U.S. Department of Agriculture helps low-income families buy homes? The USDA Rural Development department runs a Single Family Housing Guaranteed Loan Program.
To qualify, you’ll need to certain income requirements and purchase a property that meets the criteria of the program. Income requirements are adjusted based on where you live, but you will need to buy a property in a rural area to qualify.
4. Veterans Affairs (VA) Home Loans
Home loans offered by the VA are served by lenders and backed by the VA, meaning they’re less risky for conventional lenders.
To qualify, you’ll need to be a veteran and meet credit requirements. But if you meet these criteria, VA Loans can be of serious benefit: the VA guarantees up to 25% of the payment on the loan to help overcome the hurdle of saving a down payment or buying private mortgage insurance.
5. Non-prime Lenders
If you want to buy now and other lenders won’t consider, you can settle for a nonprime lender.
Non-prime lenders don’t require a waiting period; most will take you on immediately after your loan foreclosure is completed.
However, you should only choose a non-prime lender if it’s essential that you get a new loan immediately and if you can afford it. The terms on non-prime mortgages are almost always higher than other programs. The fees are also greater, and the terms are rarely favorable to the borrower.
Remember, a mortgage is something you live with for 15 to 30 years. Even if it’s tempting to dive back in, consider whether you can afford significantly more interest over the next 30 years – and where the savings could go.
Get a New Loan After Foreclosure
Going through a rough financial patch is almost universal. Few of us ever get out unscathed.
Fortunately, a severe credit event doesn’t ruin your finances forever. By working to dig yourself out of the hole, you’ll eventually make it to even ground with a chance to start building back it back up again.
Are you preparing to apply for a mortgage after a loan foreclosure? Still have that nagging question, can you get a loan after foreclosure? Share your stories and questions in the comments below.
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