ACHL Blog

Written by Alyssa Davis, Mortgage Advisor

Going through a foreclosure can be a disheartening and painful process. For many, it can feel like the pride of homeownership may be a dream that’s lost. But thankfully, it’s not a permanent mark on one’s credit record and homeownership can be attained again – perhaps even sooner than some might think. A foreclosure will stay on a consumer’s credit report for seven years from the date of filing. However, the length of time a buyer will have to wait after a foreclosure is recorded depends largely on the new loan program they intend to use and the circumstances surrounding the foreclosure.

Government loan programs, such as FHA or VA, are the most forgiving when it comes to how soon a previously foreclosed upon borrower can obtain financing again. FHA guidelines dictate that a borrower is generally not eligible for financing within the first three years after foreclosure or deed-in-lieu of foreclosure. However, an exception to the three year requirement may be given by the lender when there are extenuating circumstances surrounding the foreclosure beyond the borrower’s control such as serious illness or death of a wage earner. FHA does not consider divorce or inability to sell a property due to job transfer/relocation an extenuating circumstance. The other important aspect of getting an exception to the three year requirement is that the borrower must have re-established good credit after the foreclosure.

Conventional financing has stricter time requirements. Foreclosures that occurred due to financial mismanagement require a full seven years to have elapsed, or three years with extenuating circumstances. But even if an exception has been granted, there are additional restrictions with regards to loan-to-value and occupancy types that will be allowed if less than seven years has passed.

Probably the most important aspect of getting back in a position to buy a home is to diligently protect one’s credit after a major derogatory incident such as foreclosure. Any minor negative credit item such as a collection or late payment is scrutinized more than if foreclosure or bankruptcy had not occurred. Remember, a lender will be looking for good credit to be re-established after a foreclosure. That means that the prospective borrower who hopes to get loan approval after foreclosure – especially if requesting an exception for extenuating circumstances – will need to have current credit accounts (e.g. auto loan or credit cards) with a clean payment history, with no collections, judgments, or other negative credit items.

If you’ve gone through a foreclosure and unsure about when or how you might qualify to buy a new home again, the best thing to do is start talking to a lender and putting a plan in place. Give American Capital Home Loans a call and speak to any of our seasoned Mortgage Advisors to help put you back on the path to homeownership!