If you have had a foreclose on your home in recent years and are looking to re-enter into the housing market, you will have a hard time receiving another mortgage loan if the foreclosure is recent. However, there is good news in the realm of foreclosure loan options.
With a conventional loan, a home loan applicant will have to wait as long as seven years to qualify for a loan, though, of course, not everyone has seven years to wait before they purchase their next home. Recently, the Federal Housing Administration (FHA) lowered the “seasoning requirement”, which is the waiting period between a foreclosure and a new FHA mortgage loan, from seven years to a more reasonable three years.
As can be seen on the chart above, FHA Loan seasoning requirements are generally lower than for Conventional Loans, with the exception of a short sale. As a result, an FHA loan is the best option for borrowers who have had a foreclosure in their recent past but do not want to wait the required seven year period with a Conventional loan.
The following are some tips and guidelines to follow if you are interested in an FHA Loan with a foreclosure in your past:
Credit History: Credit history is still very important and a credit score of 580 or above is required. Foreclosures and short sales both impact credit scores hard, at numbers such as 250 points down. An applicant should work on repairing their credit score by paying bills on time, all the time.
Savings: It is highly recommended that the loan recipient have three mortgage payments worth in savings. Otherwise, one can easily get into debt without the money saved.
Down Payments: Down payments are required. After all, an applicant with a foreclosure history is a riskier borrower in the lender’s eyes. The down payment minimum is 3.5% of the loan.
Waivers: A new FHA loan may be possible to obtain 1 year after a foreclosure, if the borrower experienced an “economic event”, which is defined as anything that occurred beyond the borrower’s control and results in Loss of Employment, Loss of Income, or a combination of both.
Bankruptcy: If you have filed for bankruptcy in the past and are interested in receiving a new home loan, two years should pass between bankruptcy discharge (not the date of closing) and applying for a new home loan.
Missing mortgage or rent payments: The FHA is more flexible when it comes to missed payments than regarding credit history. If the payment history is otherwise perfect, a letter of explanation could be all you need for approval.
Judgments, collections, and federal tax liens: If you are considering an FHA loan, the limit for collections should not be more than $1,000. Before applying for the loan, these items should all be paid off in full.
We hope you found this article helpful as you research your recent foreclosure FHA loan options. Contact our knowledgeable team at The Mortgage Brothers Team for additional information or to apply for a loan today. Also, below, download our free FHA Loan Guide to find out if an FHA loan is right for you.