When Can you Own a Home Again After Foreclosure? Filing for bankruptcy protection and foreclosure are two of the most damaging blows on your credit standing, disqualifying you for a home loan over the next few years.
You will not be able to file for a new home loan if you have sold your previous home as a short sale home. Short sale homes are those homes sold below the price of the balance debts on the mortgage.
In the past six years, more than 4 million homes have been foreclosed due to the real estate downfall associated with the economic recession. Last year, Florida has had 485,286 foreclosure filings, placing them at the 2nd highest foreclosure rating. But this rating is 6% lower than the previous year as filings have plunged 54% from a year earlier to the lowest since July of 2007.
Some of the owners who had foreclosed houses are now beginning to plan to get a new home through a new loan. But some had wise short sales—buying a new home before short selling current home.
In this case, the interest rate may be higher, but 4% a little more is no big deal.
How likely will your bank approve your loan application if you have a real estate- related bad record? Is there something you can do to save yourself from mortgage penalty?
There are a lot of factors to be considered, but it depends largely on whether you have had a foreclosure or a short sale home.
In most cases, borrowers who have foreclosure history will have to wait for 2- 7 years before their application will even be accepted by the lender.
This waiting period is according to the guidelines imposed by most banks so they could sell their home loans. This is because, potential buyers like Fannie Mae and Freddie Mac have a different set of guidelines for the loans they will purchase and certain criteria must be achieved before they qualify a borrower.
A person’s credit score, employment history and other factors that account for one’s credit worth will take a back seat to these resale rules.
If a buyer who had a past foreclosure seeks a government-backed mortgage, the waiting period can vary before they will be qualified.
With Federal Housing Administration, homeowners must wait for 3 years from the date of foreclosure before they can qualify for backing by such agency. The Department of Agriculture also requires the same waiting years.
While with Veteran’s Affairs, they require 2 years. Fannie Mae and Freddie Mac, which guarantees 50% of the mortgage requires 7 years from the date of foreclosure.
However, Fannie Mae allows 3 years of waiting time in the event the foreclosure was due to extenuating circumstances. This means any event that is beyond the borrower’s control that has resulted in reduction of income or sudden increase in financial obligations such as unemployment, medical bills, and spousal separation.
FHA may grant exemption to the waiting time in cases such as illness or death of the wage earner. A divorce may also qualify from this exception but only in case to cases basis.
The impediment for having a short sale marked in your credit history can be less severe but in some cases, may also be severe.
Those borrowers who are not paying their mortgage when they sold their house will have to wait for 3 years before they can apply for a home loan to the FHA. But that time penalty may be reduced or waived in cases like long-term unemployment.Those borrowers who are not paying their mortgage when they sold their house will have to wait for 3 years before they can apply for a home loan to the FHA. But that time penalty may be reduced or waived in cases like long-term unemployment.
Borrowers who paid in the 12 months prior to their short sale will have no FHA penalty time.
Another thing, the amount of down payment can also shorten the waiting period. Fannie Mae will reduce the time penalty from 7 years to 2 years to those borrowers who made at least 20% down payment of the total loan. Those who made 10% can qualify only after 4 years.
Not only will foreclosure and short sale affect the waiting period on new home loan, it will also affect the credit score and availability of other loans. And these two will remain in your credit history for up to seven years.
FICO credit scores usually range from 300 to 850, a foreclosure has a score of 720 and can go down to as low as 570 and will take about seven years to bounce back fully, and that’s assuming other else are stabilized.
Moreover, there are still things you can do to help regain your credit score in the face of negative credit rating. Here are five:
1. Pay your bills on time. To show a record of good credit accounts.
2. Get more credit. While this may sound contradicting, getting more credit perhaps a car, and paying it good will help boost your credit standing.
3. Be patient. Poor credit score will decline over time.
4. Complain without arguing. Dispute any error on your credit report.
5. Save. Cut back your expenses and save some cash for a future downpayment.
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Call Stephanie Anson today at 352-260-0153 for a confidential phone interview regarding your options.
Please seek legal advice. This information is for informational purposes only.