How long after foreclosure can I purchase a home?

Among todays mortage crisis there seems to be much confusion about the length of time a foreclosure will negatively affect ones credit, and how long will it take before they are able to purchase a new home after foreclosure.

Many homeowners think, mistakenly, that because of foreclosure they will never have a chance to buy a new home, finance a car under their credit, or even get a decent interest rate on a credit card just because their score has been hit by foreclosure.

The most negative affect a foreclosure has is the fact that it will remain on your credit report for about seven years. Even if a borrower requests from their lender to remove the foreclosure from their records, many times they will not be interested in doing so, and there is very little you can to to make them.

So therefore these borrowers will more than likely have to put up with having a foreclosure on their  report for almost an entire decade. But the worst affects of foreclosure will be during the first couple years after this event has taken place.

The worst affects are during the first few years because as the years go by the foreclosure will have less of an impact on their credit scores.

A foreclosure and all the missed mortgage payments will instantly drop your credit score anywhere from 200-300 points after the sale and eviction have taken place. But as the years go by homeowners can start  repairing their credit score by trying to pay off all other debts and even arguing the past negative affects on their credit report. By doing this ones credit will slowly begin rebuilding itself even with the foreclosure.

The time a homeowner will be eglible for a new mortgage will completely depend on their effort in trying to repair their credit.

One can possibly apply for a new loan within about a couple years after the foreclosure has taken place, but only if they have showed good payment history since then. It is also important to save up quite a bit for a down payment to help make it easier to apply for a new home loan. So if you consistently focus on repairing your credit score you may be purchase a new home within a few years after foreclosure, while someone who does not focus on repairing their credit may have to wait about 4-5 years for their credit to gradually start repairing itself.

FHA Guidelines:

FHA require a a foreclosure of your primary residence must be at least three years old and have been caused by circumstances out of your control: such as, death of the primary wage earner, layoff, or long term serious illness. Non-conforming lenders do vary but will normally require a substantial down payment if it is less than 3 years old.

Repossession Credit Guidelines:The credit guidelines on this are about the same as a foreclosure except that it cannot have a deficiency balance for a conforming loan. The non-conforming market doesn't care about the balance if it is more than three years old and again, their credit guidelines vary from one lender to another.

Fannie Mae foreclosure guidleines:

Fannie Mae now has internal guidleines that require a five-year period is required to re-establish credit and from when the foreclosure action is reported on the credit report or other foreclosure documents provided by the borrower.

Un periodo de 5 aos es requerido asi como el establecimiento de un credito desde la fecha en que se ejecuto el foreclosure.

Additional requirements apply after five years up to seven years following the completion date:

Se le puede requerir mas informacion y requsitos despues de los 5 aos y antes de los 7:

The purchase of a principal residence is permitted with a minimum 10% down payment and minimum representative credit score of 680.
•Adquirir una propiedad para habitarla usted mismo no renta( con un m­nima del 10% de down payment y un puntaje de credito de 680 como minimo.
The purchase of a second home or investment property is not permitted.
Adquirir una segunda casa o de inversion no es permitido.
Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.
Cash-out refinances are not permitted for any occupancy type.
Exceptions for Extenuating Circumstances

A three-year period is required to re-establish credit, measured from the completion date of the foreclosure action.

The additional requirements listed above apply after three years and up to seven years following the completion date, except the minimum credit score of 680 is not required.

Deed in Lieu of Foreclosure

A four-year period is required to re-establish credit, measured from the completion date (the date the deed-in-lieu was executed).

Additional requirements that apply after four years and up to seven years following the completion date:

The borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10% minimum down payment or the minimum down payment required for the transaction.
Limited cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that time.
Exceptions for Extenuating Circumstances

A two-year period is required to re-establish credit, measured from the completion date.

The additional requirements listed above apply after two years and up to seven years following the completion date.

Preforeclosure Sale

A two-year period is required to re-establish credit, measured from the completion date.

If you are one of thousands who have had there homes recently foreclosed on remember the key to purchasing a new home will be focusing on rebuilding your credit scores as soon as possible.

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Moe Bedard
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My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications. I currently live in Carlsbad, California with my beautiful wife and children.
  • Cindy

    Our situation is this. We have an ARM that will reset in 2012 and we are severely under water in our home. What are our options? We had been thinking about doing a deed in lieu of foreclosure but is there a better way to handle this situation? We are not behind in our payments but it seems you have to stop paying the mortgage to get any help.

    Is there any chance the market will bounce back enough to be able to sell to break even and get the load paid off? We don’t think we can make any money this home now given the current situation.

    As far as being able to buy another home following a foreclosure, we have absolutely no desire to buy another home as are feeling stung by the whole situation. However we don’t want to be unable to finance cars and similiar things.

    Your input is greatly appreciated…thanks.

  • jason olivier

    my foreclosure is 2 years 4 months ago…i left the housse because of mold…my fico is 710-720 haven checked lates on anything have a a job with income…looking for a non conventional lender….have good downpayment

  • mortgagedrnick

    Cindy- if you walk from the property the lender will foreclose. You have an ARM that likey will adjust down in price in the near term. For a long term outlook you should consider doing anything in your power to avoid forclosure. It will impact your FICO score and the derogatory information on your credit report will follow you for seven years. Not many creditors would accept risk that suggests that one would treat a home as a disposable asset. Consult with your lender, or contact a realtor and they may advise you of alternate options including short sale which can almost be treated with the same logic as my comments about forclosure. You have much to consider but many understand the position you find yourself in.