Getting a mortgage after foreclosure
There are some additional hurdles for homeowners who have gone through a foreclosure, short sale or bankruptcy, but a little patience and some financial hard work will go a long way.
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Buying a home is a challenging goal for most hopeful homeowners. But for those who have experienced a bankruptcy, foreclosure or short sale, the hurdles are even higher.
Still, it's not impossible to buy a home after financial difficulties, says Dan Keller, a mortgage banker with Hometown Lending in Everett, Wash. In fact, Keller says, people who have cleaned up their credit and are otherwise qualified to get a mortgage can buy a home as soon as they have outlasted a prescribed waiting period after the bankruptcy, foreclosure or short sale.
Wait a while
The waiting period can last one to seven years, says Kirk Chivas, chief operating officer at First Commerce Financial in Wixom, Mich. The one-year requirement applies to buyers who complete a Chapter 13 bankruptcy, have a spotless subsequent credit history and want to get a new loan insured by the Federal Housing Administration or guaranteed by the U.S. Department of Veterans Affairs. The seven-year requirement applies to buyers who experienced a foreclosure and want to get a new conventional loan that can be sold to Fannie Mae or Freddie Mac.
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In between are a number of two-, three- and four-year timelines based on similar criteria and other factors such as whether the buyer's previous mortgage was current at the time of a short sale or the size of the buyer's new down payment as a percentage of the home's purchase price.
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Generally speaking, the waiting periods after a bankruptcy tend to be more black and white while the waits after a foreclosure or short sale have more gray areas, Keller says. And in some cases, a waiting period can be waived or shortened if the buyer's bankruptcy, foreclosure or short sale was due to extenuating circumstances or a hardship beyond his control.
Technically, it is possible for a buyer whose prior loan wasn't in default at the time of a short sale to get a new FHA-insured loan with no waiting period, Chivas says. But he adds that he's never encountered anyone in that situation.
Buyers must have very clean or perfect credit histories before they can buy homes after bankruptcy, foreclosure or short sale. A slip-up as small as one late credit card payment could disqualify a post-bankruptcy buyer from some loan programs, even if the waiting period has been completed, Keller says.
"Bankruptcy is a serious word," he says. "If you do it, it's a get-out-jail-free card. But once you get out of bankruptcy, you need to be flawless in your credit. Don't even drop a gum wrapper."
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Credit dings can be difficult to sort out for buyers who experienced a loan modification or short sale, in part because, as Chivas says, there's "no consistency" in how lenders report those events to the credit bureaus. Buyers should review their credit reports and correct any errors or clarify the circumstances of adverse items.
Stable employment can be a plus, too, Keller says, noting that some loan programs are more lenient than others. "If there was a gap," he says, "it needs to be explained."
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Consult a loan pro
Given these complexities, buyers are advised to consult a loan officer or mortgage broker early on for advice that applies to their situation.
"They may think they're fine, but if they're not talking to a professional, their hopes can get dashed or crushed," Chivas says. "That's why you want to speak to someone as soon as you start dreaming it up in your head" that you want to buy a home after a bankruptcy, foreclosure or short sale.
BofA gave me a $122,000 principle reduction 18 months ago. Since then my home value has shot up
$52,000 and I now have a 3.5% interest rate.
My husband and I had NO DEBT (so we couldn't file bankruptcy) in fact we "thought" we'd done it all right. Paid cash for our cars, no credit card debt, etc.
We lost our home, our life savings, our retirement - all in less than 5 years. Our home lost over 1/2 it's value (from $650k to $300k in less than 4 years)
At 60 we will likely never own another home. I've owned a home since I was 25 and worked hard for them too. Now I'm working full time PLUS (60-70 hours a week) and pay more in rent ($2,400 a month) than my mortgage. We have no credit (since we paid cash) and to be honest, I feel like giving up. I don't see the light at the end of the tunnel for us. I'm fortunately to be employed at my age but that could end anytime and then what? Who will hire me?
It's bleak. It's depressing. And it's endless. Even if we were 40 I could see "starting over" but that's pretty hard at 60.
Thank God I never use credit cards. I never do believe in plastics
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Regards Gary Cole.
I got a loan! People still expect loans to fall in your lap. Well, that will not happen anymore. Go to bankrate.com and apply. Better yet apply with your local credit union, because they will get you approved unless you are a total disaster. Understand if you screwed the pooch you will not get the 3.85-4% rate. My brother and I both got individual loans but it took 1-2 months of work and the bank wanted a whole lot of information.
For the small minded people who spend all their time judging someone else mistakes. There are many people who walked away from their homes not because they couldnt afford the house but because of tactless investors or home improvement companies. I've been in my home for ten years. It was purchased from an investor. I did everything I was suppose to do. I had the house inspected and it passed. After being in the house for 3 to 4 years I found that the investor had some very non professional work done to sell the house for a great profit. I had to take money out of the house to get the immediate work done. Now i'm taking on a second full time job to get the remainder of the work completed. ARM's aren't a bad thing but you have to read the terms of the loan and the rate of decrease or increase before signing the papers. This whole morgage loan instituation need to be revamped and regulated. There shoud be more regulation of home improvment companies because they rob people of millions each year. Property investing should also be better regulated to protect the consumer. The News have focused on people who purchased home with no doc, interest only and ARM's that they could not afford but has said very little about people who lost their homes because of home improvement scams, the outragous increase in property taxes due to the influx of Mini mansion in older neighborhoods.
It may be tight right now but the loan process is going to get better because the market must be able to sustain itself and because so many people experienced credit problems due to unemployment they are going to have to make it possible to give loans. If no one is getting loans then there's not going to be any interest paid and the home loan instituation need the loans to stay afloat.
Yes, the banks are run by crooked bums and are run in a criminal fashion made legal by the crooked politicians in office.
BUT.... Still, anyone who was "stupid" yes..."stupid" enough to sign up for an ARM loan for 30 - 40 years quite frankly, deserved what they got!!!
My wife and I spent the last 25 years looking around at what was going on and laughing at the "stupid" financial moves people were making. Our schools really let these kids down setting them all up for financial failure.
It isn't easy. Even just for a simple credit card, applying for a mortgage it is even harder. I am so sure 99% your applications will be rejected. Even for peole has very good credit scores and a 20% down payment, banks will not likely to loan up to the remain amount needed . So for those with less pristine credit scores, don't waste your time.