Since the financial crisis hit in September 2008, there have been roughly 4.2 million completed foreclosures across the U.S. through February 2013, according to housing data company CoreLogic. That means there are an awful lot of former homeowners out there hoping to buy a home again someday. And the good news for those folks is that mortgage lenders are perfectly willing to lend to borrowers after a foreclosure – as long as they wait long enough, that is.
“The biggest hurdles for borrowers in qualifying for a mortgage after a foreclosure are the credit score and the waiting period,” says Darice Vieira, loan officer with Commerce Mortgage in Visalia, Calif. “Provided the rest of their credit profile is good, it is not much different than an ordinary candidate applying for a mortgage loan.”
So while it’s no fun to be patient, the waiting period goes hand-in-hand with credit repair. After such a major financial trauma like foreclosure, lenders require borrowers to wait between three and seven years to reestablish their credit and prove they can responsibly take on debt again.
Potential buyers with foreclosures in their past will need to wait between four and seven years in order to obtain a conventional mortgage backed by Fannie Mae. Those who can prove they had extenuating circumstances like divorce, job loss or severe injury or illness could get a new mortgage in as little as three years. Borrowers can apply in three years for an FHA loan if they can put a minimum of 3.5 percent down. And after a short sale, borrowers generally have to wait at least two years before their next mortgage.
It is possible to get a mortgage sooner through lenders who do not sell to Fannie Mae but it will be pricey – much higher interest rates and larger down payment requirements.
The best thing for potential homeowners to do during this waiting period is to improve their credit. Making all payments on time and keeping balances low on credit cards will help to repair their FICO scores and prepare them for their next home purchase.