Buying a property after a foreclosure or short sale may seem like an immovable mountain, but that doesn’t have to be the case, we’re seeing a new trend on the rise.
This is the re-entry of the forgotten segment of home buyers called “Boomerang Buyers.” They are former homeowners that were forced into foreclosure because of the bubble burst.
Real estate agents are fond of working with boomerang buyers. They’ve been through the process, which was probably a hellish experience and they are willing to do whatever it takes to be able to purchase a property.
However, they face serious challenges in financing a home. Usually, banks are hesitant to offer mortgages to borrowers if they have a recent foreclosure in their record.
Luckily, they don’t need to be overwhelmed by this process. With the right knowledge and a little patience, they’ll get to purchase a home they can call their own even with a foreclosure in the past.
Finding a Mortgage Lender
Finding a mortgage lender after a foreclosure is a bit tricky. They are often hesitant because you’ve shown poor ability to repay a product that you’re hoping to purchase again.
But hard work has its rewards; you’ll just have to wait a little bit longer than you would with regular sales.
If you’re seeking a home loan, it is essential to understand that you’ll have to wait three years starting from the actual date the foreclosure was filed.
However, if the foreclosure is due to a situation out of your control, like a substantial period of unemployment, a significant illness, or a divorce you might be able to find a private or portfolio lenders who are willing to shorten the seasoning period with high rates and fees.
Remember, one of the keys avoiding potential risk is to wait until you qualify for conventional mortgage financing.
Every type of loan requires a waiting period before buying a home after foreclosure. Conventional loans have some of the strictest underwriting standards especially when there is a foreclosure involved.
The waiting period is seven years from the date the foreclosure filed, and they come with stricter credit and debt to income requirements. The only possible way to qualify with a low credit score is to put down a larger amount of money.
If there are different lenders offering, comparing interest rates and eligibility is the key to finding the best mortgage providers. ‘
Unlike conventional loans, not everyone qualifies for VA loan. It is offered on active members of military and veterans. They include many benefits like no down payment and competitive interest rates.
However, there are rigorous guidelines involve in applying to VA loans, so make sure to have someone with specific experience in this kind of loans.
Typically, the waiting period is a minimum of two years from the discharge date.
Thanks to the recent changes of rules in Federal Housing Authority, you may be able to apply for an FHA loan a year after completing foreclosure and offers a chance to home buyers who have less than perfect credit score.
But, you must have a documented proof that a situation that is out of control happen to you such as job loss or medical emergency which reduce your income for over six months.
Saving Up After Foreclosure
After finding a mortgage lender, you should expect at least ten percent on down payment. Although it is the hardest step for those who experienced foreclosure, it is the first thing lenders or mortgage insurance wants to verify.
Remember that saving for down payment determines the capability to pay your monthly bills and show how financially responsible you are.
Good Credit Score
You still need to repair your credit score in order to qualify, even if you waited for the appropriate time to apply for a home loan. It is a big blow for your credit, so pay off your monthly bills on time will help you rebuild your payment history.
Whether you’re applying for a conventional loan, VA loan, or FHA loan it is imperative to have a good credit score. It is assurance for the lenders that you’re a responsible borrower.
Just like I said earlier, buying a home after a foreclosure is by no means unachievable. It takes time and effort to rebuild your credit score and time for the seasoning period.
Review your situation and determine which type of home loan is best suited for you and how long you have to wait to apply for one.
Having your trusted and experienced real estate agent, Abraham Walker, in your corner will make the process smooth and seamless.
- Buying a Home After Foreclosure
- How Soon Can I Buy After a Short Sale?
- Buying a House with Bad Credit
- How to Get a Mortgage After a Short Sale
About the Author: The above article was written by Abraham Walker, Your Northern Virginia Real Estate Agent, helping clients market their homes to achieve high sales with a quick closing time is my main priority. He’s the co-founder of Ask A Walker and can be found on YouTube, Facebook, and HERE on this blog.
I can be reached via email at [email protected] or by phone at (703)539-2053. I’m happy to answer all your real estate questions.