If you have been through foreclosure and intend to buy a house again, wait till you improve your credit and financial situation. This is because you would not get a mortgage till you re-establish your credit and get financially stronger.
When can you get mortgage again
If you are looking for an FHA loan, you will have to wait for 2-3 years after the foreclosure sale. In these 2-3 years, you will have to improve your credit and show that you have been regular in paying all your bills.
However, if you would like to apply for mortgage from a Fannie Mae lender, then you will have to wait for at least 4-5 years after foreclosure sale. However, in case of foreclosure due to circumstances beyond your control, you need to wait for 3 years in order to get Fannie Mae mortgage after foreclosure.
6 steps to help you qualify for mortgage
If you would like to get mortgage after foreclosure, check out the 6 steps given below.
1. Boost up your credit score: You will have to bring up your credit score
to minimum 580 to qualify for FHA loan. Conventional mortgage lenders require a score of 680-700 especially in times of mortgage market crisis.
Check your credit report for any dues on credit cards or loans and try to pay off high interest debts first. Negotiate with the creditors to get a reduced rate of interest. Do not close your old accounts within a short time as it will raise the debt-to-credit limit ratio and thus affect your score negatively.
2. Cash for Down payment: FHA lenders would require you to pay down 3.5% of the home purchase price. But, conventional mortgage lenders would insist on a 10-20% down payment. So, you will have to save enough for it.
3. Save for PMI: You should have enough savings to pay for PMI (Private Mortgage Insurance) upfront as well as in the form of monthly premiums till you build up 20% equity in your home. The PMI is required in case your down payment is less than 20% of the home purchase price.
4. Cash reserves: Your escrow account should have excess cash reserve to compensate for late payments. It is better to accumulate cash reserves for about 6 months of mortgage payment. Retirement assets such as IRA and 401(k) money can be considered as cash reserves, but are valued at only 70% of the cash amount available from these accounts.
5. Avoid credit card debt: Do not apply for new credit cards when you are on your way to organizing your finances and credit. Just take out a secured credit card and use it for small purchases every month. Make sure that you pay off the card within the due date. A secured card helps rebuild your credit history. So, while you apply for one, make sure that the creditor reports to all the 3 major credit bureaus.
6. Prepare a budget: List your income and expenses, bills, debts and develop a budget so that you can follow it and avoid overspending. It will help you save a certain amount towards your down payment or escrow cash reserve.
Getting a mortgage after foreclosure is possible only if you stick to a planned budget, try to save dollars and take steps to rebuild your credit. The fact is, you will have to give yourself some time before you actually gear up for a mortgage again.
