How Foreclosure Affects Your Credit
Lenders consider a foreclosure to be a serious derogatory event on your credit report. Generally, banks don’t start foreclosure proceedings until you have missed four mortgage payments and by missing payments it can lower your credit score by over 100 points even before the foreclosure. With Credit Services of America we can help you understand how your credit score works and what needs to be done to keep it in good standings. If you’re also falling behind on other bills, your score could drop even more. The higher your credit score was to begin with, the worse the impact of foreclosure. Note, if you are having difficult time paying your mortgage or any other bills, analyze your spending and call the companies you owe money to see if payment arrangements can be made to avoid getting into this stage. A foreclosure will stay on your credit report for seven years after the first missed mortgage payment, and you can’t get a legitimate foreclosure removed from your credit history before then. While having a foreclosure on your credit report will lower your score, its impact could lessen over time if you’re keeping up with your other bills.
Even if your credit has improved, having a foreclosure on your credit report will impose a waiting period that restricts when you can qualify for certain types of mortgages. Here are three types of mortgages whose waiting periods range from two to seven years.
Fannie Mae and Freddie Mac
Conventional mortgage loans follow rules set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). You’ll have to go through a mandatory seven-year waiting period after foreclosure before you can get a Fannie Mae- or Freddie Mac-backed loan. You may be able to get the waiting period reduced to three years if you can prove extenuating circumstances. These are defined as one-time events beyond your control that significantly reduced your income or greatly increased your expenses. Examples include a divorce, a major illness (and accompanying medical bills) or a job layoff. You’ll need to provide documentation of the extenuating circumstances.
The waiting period for a Federal Housing Administration (FHA)-backed mortgage is typically three years from the completion of the foreclosure action. You may qualify for an exception to the FHA loan waiting period if you can prove that the foreclosure was due to extenuating circumstances outside your control.
Getting a home loan backed by the Department of Veterans Affairs (VA) after foreclosure typically involves a two-year mandatory waiting period. However, depending on the lender, you may also be able to get a mortgage sooner if you can prove financial hardship.
How to Buy a Home After a Foreclosure
Check your credit report to see when the foreclosure was reported. With Credit Services of America we can help downloading your credit report and analyzing it for you and explain it to you. To buy a home after a foreclosure, you’ll need to do three things.
Wait for time to pass. Buying a home after a foreclosure is largely a waiting game. You may need to wait up to seven years for the foreclosure to drop off your credit report, depending on the lender and the type of mortgage you’re seeking. Proving extenuating circumstances can shorten the wait. With Credit Services of America we can help also with any inaccurate information reporting to make sure foreclosure information reported is accurate.
Rebuilding your credit is very important and with Credit Services of America we are able to repair credit and help with credit boosting and negotiate your debts or consolidate your student loans. While you’re in a waiting period, use the time to work on improving your credit and saving for a down payment. You typically need a FICO Score of at least 620 to qualify for a conventional mortgage or VA loan. FHA mortgage criteria are more lenient; depending on your down payment, you may qualify for an FHA loan with a FICO Score as low as 500. Keep in mind though that with lower credit score you can end up paying higher interest rates, call us so we can help you save money in your long term investment and help with your credit to get the best interest rate possible.
Improve Your Spending Habits. In addition to rebuilding your credit, you may work on your spending habits. Take an honest look at your pre-foreclosure financial habits to uncover the reasons for the foreclosure. Were you overspending? Did credit card debt spiral out of control? Did you buy more house than your budget allowed? These are important questions to answer to put you in the best place and not live paycheck to paycheck. Creating a savings during this period of rebuilding is essential to be able to save for a rainy day and create good money management skills. Work on building an emergency fund, savings. to help you in a future financial crisis. Also create a budget to figure out how big of a mortgage payment you can reasonably manage. Don’t forget to account for the other expenses of homeownership, such as home insurance, property taxes, maintenance and repairs.
A Second Try at Home Ownership
To start your journey at a second try for a home start by calling Credit Services of America where we can help with a consultation and sit down and review your credit and make a game plan. With Credit Services of America we have four services under one roof: credit repair, tradelines, debt settlement and student loan consolidation. The sooner we start working together we can set a correct timeline and expectations to help you get into your home. We also work with lenders so after you are in the best position to be approved for a home we can set you up with lenders we have partnered with to be able to help you shop around for your home.