Going through a foreclosure can be a tough experience, but you’ll want to buy a home again in the future, and you should check into how long you have to wait before you can get a conventional loan. That way you’ll know exactly what you need to do in order to get the loan you want, so you can make plans and get ready to buy a home when you’re eligible. A conventional loan after foreclosure can seem daunting, but it doesn’t have to be that way. You just need to focus your time and energy on the things you can do while you’re waiting, so you’ll be able to get a new home when a lender finds you eligible. Until that point, here are some things to consider.
What Is the Foreclosure Process?
The foreclosure process is what occurs when a person cannot pay for their home any longer. Essentially you’re giving the home back to the bank, and the bank will then sell the property for as much as they can reasonably get for it, so they can recoup some of their losses. Since many people bought at the height of the market, they owe a lot more on their homes than those homes were worth. Because of that, the bank will not be able to sell the homes for what is owed on them. The people who owned these homes generally struggle to pay for their house because the price was inflated and the interest rate was high, making their payments more than they could afford.
How Does a Foreclosure Work?
Foreclosure is a legal process. When you buy a home, you sign a contract and you agree to pay for that home through the mortgage granted by your lender. If you stop paying, the lender will bill you for the payments you’ve not paid, along with fines, fees, penalties, and any other charges you agreed to. In some cases you also have an acceleration clause in your mortgage, where the entire amount becomes due and payable if you’ve been in default for a specified amount of time. If you can’t bring your mortgage current, the bank will essentially force you to leave your home and give it back to them. This process can take months, during which time you may be able to still live in your home.
How Much Does a Foreclosure Harm Your Credit?
A foreclosure is a significant problem when it comes to your credit report and score. It will drop your score by a large number of points, and getting your score back up will take time. Even if you don’t have other negatives on your report, a foreclosure is significant. Don’t underestimate the issues it can cause for you. Still, there are times when it can’t be avoided. Once your foreclosure is over, you’ll want to start right away at rebuilding your credit so you can be that much closer to getting a conventional loan again. It will take time, but you don’t want to arrive unprepared when you do have the opportunity to make another home purchase.
Are There Other Factors That Affect Getting a Conventional Loan After a Foreclosure?
It’s not just your total credit score that matters when you decide to purchase a home. Any lender you work with will also take a careful look at your credit report in order to see what’s actually on it. Your foreclosure will show up for seven years, even though the impact it has on your score will diminish after two years. That means a great credit score may not protect you from being denied for a loan, since having a foreclosure on your record, no matter how high your credit score is, makes lenders very unlikely to want to extend credit to you on another house.
Do Lenders Have Set Guidelines for the Length of Time?
For a traditional lender and a conventional loan, you’ll need to wait seven years after a foreclosure. That removes the foreclosure from your credit report, and allows you to get another conventional home loan. If you apply sooner than seven years, even with a great credit score, you’ll most likely be denied. The best way to find out is to be completely up front with the lenders in your area. Call them or stop in, and ask them what guidelines they have for a conventional loan after foreclosure. They can tell you what kinds of guidelines they have, and if there are any exceptions. Some lenders will work with you if you can prove that an extreme hardship caused you to lose your home, but guidelines to prove that can be hard to follow.
Should You Try to Get a Different Type of Loan?
One of the options you have is getting a different kind of loan. If you’re qualified for a VA loan you only need to wait two years after foreclosure, and it’s three years for an FHA loan. However, if you’ve had these kinds of loans before and that was the loan you had when you were foreclosed on, you may have trouble getting financed. Foreclosure on a VA loan, for example, could make you completely ineligible for another VA loan. By working with your lender, though, you can determine if there are any good loan products that will work for you, or if waiting will be your best option when it comes to buying another home.
2 Point Highlight
Going through a foreclosure can be a tough experience, but you’ll want to buy a home again in the future and you should check into how long you have to wait before you can get a conventional loan.
Once your foreclosure is over, you’ll want to start right away at rebuilding your credit so you can be that much closer to getting a conventional loan again.
