Get A Loan After Foreclosure: It’s Absolutely Possible If You Do It Smart

couple in front of for sale sign deciding to get a loan after foreclosure

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.

displaced man standing in wading pool

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.

question mark on small black board

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:

  • Divorce
  • Death
  • 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.

homeowner locating keys to open house door

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.

house with sold sign

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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8 Comments

  1. I can’t say I’ve ever experienced foreclosure, but it’s very nice to know how that there are programs out there for people who have. I remember the foreclosure craze. It seemed so common for people to lose their homes (even in nice neighborhoods).

    My husband is a member of many local real estate groups, and I remember all of the foreclosure listings. It was crazy, and I would feel bad for those families.

    Thanks for presenting these great options!

    • Yes a foreclosure can definitely be a tough situation.

      I remember those days as well and it was very disturbing to hear about all the displaced people out there.  Having to leave your home can be a very stressful situation.

      Even more difficult is working through all the problems of getting your life back together and starting over.

      It is comforting to know that there are programs out there to help people get back on their feet.

      FHA and the USDA have great programs available to help people get back into a home.

      FHA was specifically created to put struggling families into homes during the Great Depression in 1931. This agency is still around and living up to it’s original mission.

      If anyone has gone through or is going through a foreclosure, don’t give up.  There are options out there that can help you stay in or find a new home.

      Talk to your loan servicer if you’re going through foreclosure.  If you have been through foreclosure and enough time has passed, talk to a lender at your local bank or credit union to discuss your options.

      All the best.   

  2. Coming out of foreclosure I would think buying a home was so far if not out of the question for me.

    This shows a clear path and steps to get there in order to get back on your feet and get to a point of owning a home again and having that financial stability.

    This is great for people that need that light at the end of the tunnel!

    • Some times people just need to look a little further and the answer is right there under their nose.  The beauty of the American dream is that you get a second chance (sometimes even more).

      There are many government program available under FHA, VA and USDA that help people get a home loan after foreclosure.

      Really all you have to do is be patient, rebuild your credit score and in a couple of years you can be back in a house that’s right for you.

      Don’t get discouraged.  Like you say, their is light at the end of the tunnel.

  3. I found this post to be very interesting. I used to work in foreclosure and this shows a different part of the business I was not familiar with. It almost seems counter intuitive that you can actually get a loan after foreclosure.

    I have never even bought a house, but I have been looking recently. The housing industry has been strong for some time now with prices in many markets increasing.

    Have you found that lenders are getting less strict in their standards for mortgages?

    • Hi Bob,

      It is possible to get a loan after foreclosure, but there are still a few things that have to happen before that’s possible.

      The first place to stop when looking for a home loan after foreclosure is one of the government loan programs.

      USDA, FHA and VA all have programs for those that have suffered a foreclosure.  They generally have waiting periods of one to three years, however if you can establish a hardship, then those waiting periods may be waived.

      Examples of financial hardship would be life events like a divorce, job loss, a death in the family or health problems. If you’ve experienced one of these there is a better chance you can get approved for a mortgage loan.

      Lenders are relaxing their standards with lower FICO score requirements and higher debt to income (DTI) ratios.  If you’re in the market for a new home, now is the time to get your financing locked up. Rates are headed up and with that mortgage payments.

      Best of luck.

  4. Hi Patrick,

    Thanks for sharing this post.

    It’s great to hear that you can get a loan after foreclosure.  It’s comforting to know that there are opportunities for people to pick themselves back up again even when something as drastic as foreclosure occurs.

    I think this post really offers hope to those people and it’s got a great set of steps people can look into further.

    Cheers

    James

    • Hi James, 

      No problem.  Now that you are aware you can share what you have learned with family and friends who may be facing or have endured a foreclosure.  Hope it never happens, but you never know.

      You can get a loan after foreclosure but there are some rules that do apply like a waiting period. FHA has a 1-3 year waiting period and VA 2 Years.

      Those waiting periods can be reduced if you have suffered a hardship beyond your control, like a loss of job, death in the family or a divorce.

      Either way, it gives folks hope that they can live the American Dream again, by just waiting a little bit and improving their finances when the time comes to buy.

      All the best.

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