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Buying A Home After Foreclosure

Since we work a lot with foreclosures and short sales, this is a topic that comes up frequently with our clients. So what is the time after a foreclosure or short sale that you must wait until you are eligible to purchase a home again? The answer varies by the situation at hand and the type of loan you are seeking to purchase a home. The good news is, you will be eligible to buy another home within a few years and you now have time to improve your credit to get it back to obtain favorable interest rates.

The waiting periods for qualifying for a new loan depends on the type of financing the loan was and it is broken down like so:

  • Conventional Loan: The waiting period for these types of loans is the highest and it is a 7 year waiting period with the option to drop it to 3 years if you have an extenuating circumstance. Conventional loans typically want a 10% down payment after a foreclosure which would make you also get PMI or private mortgage insurance along with your loan.
  • FHA Loan: The waiting period is 3 years and can be as low as 1 year with an extenuating circumstance. The underwriter would like you to follow the FHA requirement of “the borrower has re-established good credit since the foreclosure” prior to getting a new home mortgage.
  • VA Loan: This loan has the lowest waiting period at 2 years after foreclosure and can be fulfilled in as little as 1 year with an extenuating circumstance. The main difference is that the previous loan must have also been fulfilled.
  • USDA Loan: We can’t leave our “rural” homeowners out in the dark and they are similar to FHA timelines with one major difference. They want to see the extenuating circumstance resolved at least 12 months prior to the application date.

Mortgages that go into foreclosure get reported to their own credit monitoring system that only mortgagers can access. Here is an explanation from Housing Urban Development on how that works:

CAIVRS was developed by the Department of Housing and Urban Development in June 1987 as a shared database of defaulted Federal debtors, and enables processors of applications for Federal credit benefit to identify individuals who are in default or have had claims paid on direct or guaranteed Federal loans, or are delinquent or other debts owed to Federal agencies.

In 1989, the Office of Management and Budget set as a performance goal that certain program agencies and their authorized financial institutions should use CAIVRS to conduct prescreening to determine a loan applicant’s credit status with the Federal Government. The purpose of this methodology would enable the program agencies to prescreen their borrowers and to broaden the Federal Government’s base in determining an applicant’s creditworthiness. Some non-tangible factors are:

  • Verifying that loan applicants are not in default or delinquent on direct or guaranteed loans of participating Federal programs as required by OMB Circular A -129.
  • Providing authorized users with a means to prescreen applicants for Federal credit benefit, to avoid extending benefits to individuals who are
    credit risks.
  • Demonstrating to the public the Federal Government’s commitment to collecting delinquent debt and the importance of meeting Federal
    obligations.

To summarize, it is much easier than you think to become a buyer again. Few things to consider:

  • Type of financing dictates the timeframe that allows you to do so.
  • Rebuilding your credit and resolving issues will be the key to getting optimum rates.
  • Past obligations should be resolved sooner rather than later.
  • Different banks have different rules if you are using conventional.

All of those are very doable and we at DW Agents would love to help you get from whatever position you’re in, back to owning a home that you can definitely afford. If you want to get started with the process without an inquiry on your credit, start here.

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