Is it possible to buy a home after foreclosure?

The answer is: yes!

Yes, it's possible; however, obtaining a mortgage can be challenging since lenders see foreclosure as a huge threat to your ability to repay the loan.

Nonetheless, there are ways how you can restore your credit history and prove to lenders that you are now a responsible borrower.

In this post, we'll answer questions on foreclosure, including how long you should wait before buying a home, how to get a mortgage, etc.

But first, let's start with the basics.

What Is Foreclosure?

When a borrower defaults on a mortgage or other loan secured by a property, a lender may legally take possession of the property through a process known as foreclosure. The property may then be sold by the lender to recoup the unpaid balance.

Learn more about foreclosed properties by clicking this link.

How long should you wait before buying a home after a foreclosure?

Borrowers who have had their homes foreclosed on typically have to wait a certain amount of time before receiving a new mortgage loan from another institution. Extenuating circumstances, like a medical emergency, might shorten the time frame for some loan kinds.

Conventional Loan: 3 Years

Obtaining a conventional loan—one that mortgage market-makers like Fannie Mae or Freddie Mac will purchase—after a foreclosure can take up to seven years. According to Jilyn Crawford, senior loan officer and sales manager at American Family Funding in Santa Clarita, California, you might only need to wait three years if the foreclosure was caused by a medical condition or a loss of work.

VA Loan: 2 Years

Only two years must pass between foreclosure and applying for a new loan, according to the Department of Veterans Affairs (VA) for veterans and active military personnel. Keep in mind that if you are eligible for a VA loan, you will receive a home loan entitlement, which is the highest amount that the VA promises to reimburse the lender in the event of default. "In a foreclosure, I have seen veterans lose some of their entitlement, but they still have some remaining. Crawford says, "It's all about the foreclosed amount."

USDA Loan: 3 Years

According to Crawford, if you have a foreclosure on your credit history, you must wait three years to be eligible for USDA loans, which are available mostly in rural regions.

Non-Qualified Mortgage: No Wait Time

According to Crawford, you may be eligible for another loan immediately following your foreclosure if you have a non-qualified mortgage (non-QM), or a loan that does not satisfy regulatory requirements. Keep in mind that compared to qualifying mortgages (QM), non-QM loans have different eligibility requirements, additional fees, and higher interest rates.

How To Obtain A Home Loan After A Foreclosure

If you can convince a lender that you're prepared for homeownership, you can reapply for a mortgage even after a foreclosure:

1. Examine your credit report.

Check for any past-due accounts forwarded to a collection agency by obtaining a complimentary copy of your credit report at AnnualCreditReport.com. It is helpful to contact the agency and attempt to work out a payment schedule if you are certain these accounts belong to you.

If you discover any mistakes on your credit report, collect supporting documentation and dispute it online, over the phone, or by mail with the relevant credit reporting company, such as TransUnion, Equifax, or Experian.

2. Make an effort to raise your credit score.

After a foreclosure, you will need to raise your credit score to purchase a home.

Make an effort to pay all bills on schedule. According to Crawford, it is extremely difficult to remove late payments from your credit report. If you don't frequently make late payments, you can try asking for a one-time goodwill adjustment, which most creditors would grant. To prevent forgetting to pay your bills, try setting them up for automatic payment.

Try to pay more than the minimum amount owed on any credit cards you may have. Speak with the creditor and ask for a payment plan if you are temporarily unable to make the minimum payment.

3. Restore revenue

Consistency in employment and income is often preferred by lenders. Finding a new work should be your top priority if you just got unemployed.

Be aware that your credit record, which contains details about the foreclosure, may be examined by your future employment. Generally speaking, this shouldn't affect your chances, but it can if you're applying for a position that directly involves money. It's vital to be open and honest about your efforts to overcome your previous credit setbacks.

4. Save as much as you can

You must demonstrate to a lender that you can repay the loan in the event of an emergency if you want to be eligible for another mortgage after foreclosure.

Crawford thinks it can be difficult, but if you can, reduce small expenses like eating out. Other options to save money include switching your cell phone or auto insurance plans, as well as canceling your cable TV or streaming subscription.

5. Find a lender according to your circumstances and needs

A new lender can be an ally while you work out how to purchase a home following foreclosure. Crawford advises looking for a lender who understands your circumstances or who offers a variety of options that can meet your needs. For example, choose a lender who specializes in VA loans if you're looking for one.

"All lenders are fishing in the same pond," according to Crawford. "The difference is in the loan officer and the knowledge that officer has," she added.

Reading customer reviews from different platforms is also helpful when you want to learn more about the lender's quality of service and experience.

What To Consider Before Buying A Home After Foreclosure?

Examine your finances and yourself before purchasing a new house following a foreclosure. Are you prepared to assume homeownership responsibilities once more? In addition to the monthly mortgage payment, consider the expenses associated with property ownership, such as maintenance and repairs. And think about the events that caused your previous house to be lost. Will they happen again?

Lastly, evaluate the local real estate market. Crawford advises, "You need to look at the state of the market at that time and whether a lender will work with you."

The benefits of homeownership are indisputable. However, there are instances where extending your rental period might help you pay off debt, improve your credit, and increase your assets. When you're ready, all of those factors will make buying a house after a foreclosure much less stressful.

If you want to learn more about foreclosure or homebuying transactions, click this for free resources.