If you’re one of the unfortunate Americans who lost a home to foreclosure during the housing crisis, you know the challenges it brought. You also know that you’re not alone; more than four million homes were foreclosed each year during the period known as the great recession.
But it’s not all doom and gloom—in fact, the housing market is now in the midst of a major recovery, and those who foreclosed in the past are not forever banned from buying one again. Lenders want buyers, even those who have foreclosures in their past.
If you or someone you know fall into this category, there’s plenty of hope. Here’s what you should know:
The Waiting Game
Depending on the type of loan you want to get, there is a post-foreclosure waiting period for obtaining another mortgage, and it ranges from two to seven years. VA loans, for example, carry a waiting period of two years; for an FHA loan it’s three years, and for conventional Fannie Mae and Freddie Mac loans, it’s seven years.
These are not always hard and fast rules, and it’s important to do some research and speak to a qualified broker. For example, if you can prove extenuating circumstances such as illness or injury, your waiting period can be reduced significantly.
The Steps to Take
If there were no extenuating circumstances, the first step you have to take is simply waiting it out. However, there’s a lot you can and should do along the way, and most of it comes down to credit.
A foreclosure stays on your credit report for seven years, but maintaining good credit will go a long way in making reparations. Pay all of your bills on time and build a very strong credit history. Some lenders will approve a mortgage if borrowers have an excellent credit score. Either way, once you’ve made it past the waiting period, you’re going to need good credit to get another mortgage. Keep your debt-to-income ratio as low as possible.
The Recent Changes
If you lost your home to foreclosure and want to buy it back, you’re in luck. The Federal Housing Finance Agency (FHFA) recently revised their rule regarding real estate owned (REO) properties held by Fannie Mae and Freddie Mac. As a result, homeowners can purchase properties lost to foreclosure at fair market value.
Previously, those homeowners couldn’t simply purchase their home back at its current value, but had to pay the entire amount owed on the mortgage. As the market continues to recover, borrowers aren’t the only ones who want to get homes off the market—everyone in the industry is doing their part to make ownership easier and inventory lower.
So if you’ve fallen on hard times in the past, a mortgage is still in your future. Just be patient and proactive, and speak to a pro for advice along the way.
If you’re buying or selling a home in the Boston area and are in need of a mortgage, or have any mortgage-related questions, contact me at anytime for advice or help.