If you’ve experienced foreclosure you might think you’ll never be in a position to buy another home again. Foreclosure certainly impacts your credit score but it’s only a matter of time before you can once again apply for a mortgage. The question many people have is how long they have to wait before buying a home after foreclosure. How long depends on the circumstances of your foreclosure, your ability to increase your credit score, the type of loan you’re prepared to apply for and the foreclosure waiting period.
Seven years is the standard waiting period of buying a home after a foreclosure as required by Fannie Mae, the federally chartered corporation that purchases millions of American mortgages. But even if you wait seven years your mortgage application will only be successful if you’ve re-established your credit score after your foreclosure. Despite the fact that foreclosure only remains on your credit report for seven years, a new lender will still want to be sure you’re not a high-risk borrower for a loan and the best way to prove to them that you’re not high risk is with a good credit score.
Buying a home after foreclosure means you’ll need to boost your credit score. There are a number of ways you can increase your credit score. First, after your foreclosure it’s important to rent a place that you can easily afford. Living within or below your means will give you the opportunity to save money for a down payment on your next home. Another strategy to increasing your credit score is obtaining a secure credit card, one that lets you make a deposit to the card’s issuer with the credit limit tied to that amount. By paying off your purchases on the card you’ll establish a record that proves you not only pay your debts but in a timely manner. This is what lenders want to see from folks applying for mortgages. Lenders will also look at your employment status. Your chances of being approved for a loan increase the longer you’ve been on the job.
There are cases when the Fannie Mae waiting period will only be three years instead of seven. If your foreclosure happened as a result of extenuating circumstances that were beyond your control like a significant or prolonged reduction in income due to job loss or a catastrophic increase in financial obligations from a life threatening illness/medical bills, you will need to provide documentation supporting these claims in order for you to apply for a mortgage after three years. Such documentation should include information that confirms those events like copies of a divorce decree, medical bills, job severance papers, etc. You could also provide lenders with other documents that show your inability to resolve the problems that caused the event like insurance paperwork or tax returns.
There are some lenders who don’t sell their mortgages to Fannie Mae giving borrowers an opportunity to apply for a mortgage soon after a foreclosure. However, you must be prepared to meet their conditions as these lenders are likely to require a large down payment and charge high interest rates. In this situation lowering your expectations in terms of the home you’re looking to buy will mean having to borrow less and increase your chances of obtaining a loan and the amount you’ll have to repay. This is not a risk many borrowers who have recently experienced foreclosure are willing to take. The longer you wait to apply for another mortgage, the more time you’ll have to re-establish your credit score and obtain a loan with more favorable terms and conditions.