• Louis Baca

Finally, some GREAT news for Foreclosure Victims!

There's a common misconception out there that if you’ve gone through a foreclosure, you won't be able to qualify to repurchase a home.

Foreclosures happen!

The feeling among foreclosure victims is that it is a Death Sentence.  This is just not true. The truth is that a foreclosure can make it more difficult to secure a home loan, but it is not impossible or hopeless.  The reality is in today’s world, post the 2008 mortgage crisis, it's challenging for anyone to get a home loan, whether you have a foreclosure in your past or not.  Government restrictions and regulations have made it challenging for all borrowers.

In August 2013, The Department of Housing and Urban Development altered the Federal Housing Administration mortgage guidelines.

The rules made those who experienced a foreclosure due to an “economic event” eligible for FHA mortgages after just 12 months, provided they can prove income recovery, show a clean credit history and meet the agency’s other guidelines.

An “economic event” is defined as any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for at least six months.

“FHA recognizes the hardships faced by these borrowers and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” wrote Assistant Housing Secretary Carol Galante in a letter outlining the rule tweaks.

These “rule tweaks” were GREAT news because it meant that a previous foreclosure was not a Death Sentence.  A path was now created making it possible for Foreclosure Victims to get a new home loan.  In most states, it meant re-establishing your credit rating and waiting a specified period before applying for a mortgage. The length of time that you needed to wait varied depending on the home loan, you are seeking, but with a little patience and hard work to improve your credit standing, you could obtain a home loan after a foreclosure.

Today, the underwriting guidelines with some lenders have relaxed even more.  Lenders are making the possibility of homeownership a reality again for Foreclosure Victims.

The Dream of Renting

Nobody dreams of renting. Everybody dreams of owning.

Millions of homeowners went through foreclosure in the past decade. Sky-high housing prices combined with a financial downturn forced many homeowners to give up their properties.  

Now, what? Was the cry most Foreclosure Victims were screaming!  And a new dirty four-letter word was in force – RENT!   

Renting was now one of the only options most Foreclosure Victims had.  Rent means you are paying someone else’s mortgage payment for them.  You are helping your landlord experience all the benefits of home, condo or apartment ownership, all the while building their equity and ultimately their cushy retirement. This thought adds insult to injury for most victims of foreclosure.  

Why should your hard-earned money go to someone else?  Isn’t it time to explore your options?

Buying a Home After Foreclosure

We are finally moving past those difficult times. Home values have bottomed out, and mortgage rates remain low, making it a perfect time for those with foreclosures in their pasts to apply for a new mortgage.

To obtain a home loan after foreclosure, you'll need to have some money in savings and be able to provide a down payment at a minimum. Lenders will also look at your employment history and other debt obligations as they evaluate your application and ability to repay the loan.

Again, this is GREAT news for most Foreclosure Victims who have worked hard to put this blemish behind them.  And now lenders recognize this effort by providing loan programs that can look past this hic-up.

The most significant barrier to entry into home ownership will be a down payment. Start saving money every month. You will need a down payment on your new home. The more you save, the more you can put down on the house and the less risk you pose to the lender. Depending on the type of loan, anywhere from 3.5%-30% down will be necessary.

Home ownership is a real possibility in your future. It’s now time to put this event behind you and be a homeowner again.

Top 5 Tips To Improve Your Ability To Qualify For A Mortgage After Foreclosure

A foreclosure has a considerable impact on your credit score; it's not uncommon to see credit scores drop by 100 points or more, even if you have good credit otherwise. Credit scores are one of the most significant factors that a lender will use to determine if you qualify for a mortgage or not. Today, some lenders allow a credit score as low as 500 to qualify!  But it is always a good practice to get your scores in shape.

  1. Checking your credit report. Always check your credit report for inaccuracies that may be affecting your credit score. You are entitled to a free credit report from Equifax, Experian, or TransUnion every 12 months. Use that free report to make sure your information is current and accurate.

  2. Paying all bills on time. Don't miss a payment on any bills and don't be late paying them. Even if you only pay the minimum amount required, pay it on time. The lender will look over the past several months or years of your payment histories to see how well you've been doing. A missed or late payment will look worse than a minimum payment paid on time.

  3. Not maxing out credit cards. High amounts of unsecured debt, like credit cards, are a red flag for lenders. They want to lend money to buyers who are most likely to repay it. If you have high amounts of other debt, that decreases your ability to repay the mortgage in lenders' eyes. In fact, this affects 30% of your credit score number.

  4. Not taking on a lot of new debt after a foreclosure. Similar to maxing out the credit cards, more debt equates to high-risk from the lender's perspective. Even if you know you can handle a mortgage payment plus your other debt obligations, the lender will take a much more strict, black-and-white view of the situation. Many programs require you to fit into a tight debt to income ratio. Some lenders allow for exceptions above the maximum limit so check with one of our licensed loan officers to see if you qualify. 

  5. Still taking on some debt. It's a balance game. On the one hand, you don't want to have too much debt, but on the other hand, lenders will want to see that you can repay your debt responsibly. Depending on your situation, an auto loan or secured credit card with a small balance can be a smart way to demonstrate your repayment abilities during the waiting period.

"How Long After Foreclosure Can I Buy a House?"

It's one of the most common questions would-be buyers have. The truth of the matter is, there is no easy answer. It all depends on the type of loan you are trying to obtain and the state of your finances. Each type of loan has a waiting period, and some programs are stricter than others.  Again, the GREAT news is that there are loan programs today that allow for you to qualify one day out of foreclosure. 

Your choices, and the seasoning requirements, for a mortgage after foreclosure include:

  • FHA Loan After Foreclosure. It is possible to qualify for an FHA loan just 1-3 years after a foreclosure. In most cases, the wait is 3 years, but if your foreclosure was the result of an "economic event" that was out of your control, you might be able to get a loan in as little as one year after the foreclosure. Examples of a qualified economic event include a job loss or medical emergency that reduced your income by 20% for more than 6 months. You will still need to have good credit to qualify for a loan.

  • Non-Prime Loan After Foreclosure. It is possible to qualify for a portfolio loan the day after foreclosure or short sale. This loan program requires a minimum of 15% down and credit score of at least 500. You will have to be able to prove your ability to repay the loan with tax returns or bank statements. Rates are slightly higher on this program but there is no waiting period! 

  • Jumbo Loan After Foreclosure. There is no specific waiting period for jumbo loans, which range from $350,000-$5,000,000, but they are tough to qualify for and evaluated on a case-by-case basis. One of the most weighted factors in securing a jumbo loan is the amount you can put down. At a minimum, you'll need to put 10% down but to do so, you'll also need to have 20% pledged assets or cross-collateralization. If you do not have these assets, you'll need to provide 30% down. If you want an interest-only loan, you'll need to put 40% down. You will need a minimum credit score of 620 to qualify for a jumbo loan.

  • Conventional Loan After Foreclosure. Conventional loans backed by Fannie Mae or Freddie Mac have the longest waiting period - as long as seven years from the time of the foreclosure. However, that wait time can reduce if you provide a large enough down payment. Down payments of 20% or more can reduce the wait time to just two years, compared to the 7-year wait for down payments of less than 10%. 

  • VA Loan After Foreclosure. The waiting period for a VA Loan after foreclosure is just two years. These loans are backed by the Department of Veterans Affairs and are only available to qualified Veterans or spouses of U.S. Veterans or active-duty military personnel. There are no down payment requirements, however, you will still need to have a credit score of 600 or higher and a debt-to-income ratio of 55% or lower to qualify.

Home Loans After Short Sales or Bankruptcy

Buying a home after a short sale or a bankruptcy is another challenge. Again, your circumstances will determine how soon after these events you can apply for a new home loan, but it is possible to qualify for a mortgage after both short sales and bankruptcies.

When applying for a home loan after bankruptcy, it helps to go in with as big a down payment as you can manage, a good debt-to-income ratio, and a strong repayment history.

Once again, the GREAT news is that you can buy a home again even if you are one day out of bankruptcy or short sale.  Contact our Licensed Mortgage professionals to see what current programs you qualify.

Find Out If You Qualify For A Home Loan Right Now!

If this all makes your head spin, you're not alone. Buying after foreclosure is challenging, and it can be confusing to know whether or not you'll even qualify. 

The final piece of GREAT news is that you have come to the right place!  We specialize in After Foreclosure loans, and our team of qualified and nationally licensed mortgage professionals can help you through this process.  We make it easy to understand and simple to apply online. Click Apply Now. We will contact you within 15 minutes once you submit our simple application.  Allow us to be the first to congratulate you on your new home!.

Brian Miller | Colorado   Loan Officer and Mortgage Consultant Geneva Financial, LLC.

NMLS: 1692997  Colorado MLO# 100509692

  Phone: 623-606-5636


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