June 13, 2017
No one applies for a home loan with the intention of
defaulting on the note and being foreclosed upon nor does a lender issue a loan
with the intention of doing the same. Lenders and borrowers alike go into a
transaction with a “win-win” mindset. The buyers get financing and the lender
receives interest on the loan. Yet things can go wrong in life as the
unexpected happens and a foreclosure is the only way out for some borrowers.
However, it’s not the end of the world. A prevailing myth is that a foreclosure
keeps you from buying a house for 10 years but that’s simply not the case.
Depending upon the type of loan you select and what program you’re qualified
for, you can get a brand new home loan sooner than you think.
Government Loans. There
are three primary government-backed home loan programs. They are the VA, FHA
and USDA mortgage loans and each have provisions to provide financing after a
foreclosure. If you’re VA eligible, the waiting period is two years since the
foreclosure was officially recorded. FHA loans ask that you wait for up to
three years but can be less based upon your situation. If you can document the
foreclosure was the direct result of an “economic event” you might be able to
get financing in as little as one year. Finally, the USDA program, designed for
those in rural and semi-rural areas, the wait time is three years.
Conventional Loans. These
are mortgage loans that do not carry a government guarantee with the most
common conventional loans being those underwritten to Fannie Mae and Freddie
Mac guidelines with the lender taking on 100 percent of the risk. Conventional
loans will require there be a seven year waiting period. However, in the event
of “extenuating circumstances” that forced the foreclosure, the wait time can
be as little as three years.
One final, important note- even though the waiting periods
are established guidelines it’s just as important to reestablish credit. This
means opening up new lines of credit or an installment loan and making timely
payments. If a credit report shows a late payment made more than 30 days past
the due date after a foreclosure has occurred, getting a home loan will then be
For more information or questions about mortgage loans, please call (855) 757-8748.