How soon can you get a mortgage after foreclosure?
How soon former homeowners can qualify for another mortgage after foreclosure will depend on many different variables, all of which relate to their financial condition following the loss of the home. In some cases, borrowers may escape foreclosure with their credit in somewhat decent shape, while other homeowners will have numerous charge-offs, collection accounts, and severe delinquencies that will make it much more difficult to qualify for any new credit for years.
The most important aspect of being able to get a mortgage after experiencing the loss of a house is for homeowners to begin a savings plan. With enough of a down payment, they will be able to qualify for any loan that they want, even for another home purchase within months of the original foreclosure. Of course, many banks will want a 35% down payment, but if the borrowers have the financial means to put down such a large amount, they will have a good chance of qualifying for a new loan despite poor credit.
Realistically, however, putting down 35% when buying a home may not be in the realm of possibility for most borrowers. Savings, though, should be the first priority for any family after foreclosure, because the larger the amount they are able to put down, the better the interest rate will be and the more likely they will be to qualify for the loan in the first place. But while they are saving up for the next purchase, it is also important to work on the credit history.
Credit repair and debt validation/consolidation programs can be started as soon as the owners have recovered from their financial hardship, and will have a positive impact on the ability to borrow money in the future. In fact, homeowners facing foreclosure should begin working on their credit as soon as they can, because the process can take from several months to over a year to remove some old inquiries and inaccurate or closed account information. The more accounts the owners have to resolve, the longer the process may take.
Although it will be difficult, if not impossible, to remove the foreclosure from the credit report, former homeowners can focus on all of their other debts to create a more consistently positive record of credit use. Having numerous late payments, dozens of inquiries, and charged-off accounts assigned to collection agencies can drag down a score dramatically, but these may be the easiest records to remove. Even better, depending on the situation, if a creditor or collection agency breaks the law, borrowers can often sue for at least $1,000 per violation, which can always be put towards the down payment savings plan.
But, if loan applicants have access to a 35% down payment, they can often qualify for a new mortgage anytime after foreclosure. The bank will not be so concerned with the credit history, as they are sure that they can sell the house for enough to make up any losses they would experience as a result of the homeowners defaulting. It is only when former homeowners do not have much money that they will need to work on credit repair or simply wait until they can get a new home purchase loan again.
With a serious effort at clearing up their credit histories, it may take from one year to 18 months for the repairs to make a difference, after which the borrowers can apply for a new loan. The terms may not be the best, and they may be required to put down a significant part of the purchase price, but it will most likely be quite a bit less than 35%. Although it will cost a few hundred dollars of materials and postage to dispute and remove credit records, the savings on the new mortgage will far outweigh these small expenses.
However, if the foreclosure victims simply wait and do no credit repair, they may be able to qualify for a new mortgage within three years after the foreclosure. Again, they may be required to put down at least 15-20% of the purchase price, and the interest rate will be somewhat high, but losing a home does not preclude borrowers from qualifying for a loan for the full 7-10 years a foreclosure stays on the credit report. Obviously, this is the easiest and least costly way to qualify for a new home again, but it takes the longest amount of time and the owners will be doing themselves no favors in terms of payment and interest terms.