If you’ve had a foreclosure in your home ownership history, you may be wondering, “Can I get a conventional loan with a foreclosure?” The answer is “yes,” there are a variety of conventional mortgages friendly to borrowers who’ve had some bad marks on their credit report in the past.
Though how soon you can qualify will depend on a variety of factors, including how long ago the foreclosure happened and what your creditworthiness looks like now. The standard waiting period to qualify for a conventional loan after foreclosure is seven years. Exceptions do apply in certain circumstances. We explain in detail below.
Can I get a conventional loan more quickly after a foreclosure?
Seven years can seem like a long time to wait to buy a house again, but, depending on the reasons for your foreclosure, you may be able to apply for a conventional mortgage again within three years. With appropriate documentation, there are a few extenuating circumstances that might inspire a lender to be more lenient and approve you more quickly:
- Your foreclosure was the result of divorce.
- You experienced a serious medical emergency that prevented you from meeting your previous mortgage obligations.
- Your foreclosure was the result of a job loss.
Keep in mind, however, that with a shorter waiting period generally comes more stringent down payment requirements. You’ll likely have to put down at least 10 percent of the home’s purchase price.
What if I’ve experienced foreclosure and bankruptcy on the same mortgage?
If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if your loan officer obtains the appropriate documentation to verify the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods may apply.
You’ll have to wait four years from a dismissed or discharged chapter 7 bankruptcy. With chapter 13 bankruptcy, you will need to wait two years from the discharge date or four years from a dismissed bankruptcy.
Purchasing a Second Home After Foreclosure
The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a seven-year waiting period has elapsed.
How to qualify for a conventional loan after a foreclosure
If you don’t meet the qualifying requirements for extenuating circumstances, you’ll probably have to wait four to seven years to buy a home post-foreclosure…unless you go through an alternative loan program with the VA, FHA, or USDA, for example.
Foreclosures can have a dramatic impact on your credit score, dropping it by as much as 160 points, according to FICO. If your credit score was 680 before your foreclosure, that means you may have a credit score of 520 now, making homeownership untenable regardless of the lender.
So, the first thing to work on after a foreclosure is getting that credit score back in shape. Here’s how:
- Reestablish your credit history. Underwriting will be looking for a reestablishment of credit post significant derogatory credit events. It is imperative to have open and active tradelines established and paid on time. If you have no tradelines, it makes it difficult to prove you have the ability to borrow money and pay it back.
- Regularly check your credit reports from all three credit reporting bureaus (Equifax, Experian, and Transunion) to make sure there are no errors bringing your score down even further. Those might include open credit accounts you’ve closed or judgments you’ve paid.
- Pay your bills on time. Not only does paying late cause you to rack up late fees, but it will put dings in your credit score. Avoid late payments by setting up auto-pay for your bills whenever possible.
- Pay down your debt. If you’ve got three credit cards with balances and an auto loan, for example, work to reduce the balances or pay them off entirely. At OVM Financial, we’ll want to see a debt-to-income ratio of no more than 43% (and that includes your new mortgage payment).
- Start saving, not just for the down payment on that next home but also to cover emergency expenses like a major auto repair or being temporarily unemployed due to job loss. You want to avoid going into debt if the unexpected happens.