Regardless of what you may have heard from friends, relatives or even your loan officer, it is possible to get a home loan after foreclosure. A past foreclosure is an issue for a prospective homebuyer due to the damage it does to his credit rating and the fact that it makes him a greater default risk for mortgage lenders. However, this does not bar applicants from applying-and being accepted for-home loans after foreclosure.
- Give your credit rating time to improve after foreclosure to get a home loan. A foreclosure can negatively impact your credit score by as much as 300 points. The damage your foreclosure does depends upon how high your credit score was prior to foreclosure. By paying your bills on time and managing your debt wisely, your credit score will gradually increase over time. Most individuals can expect to get approved for a new home loan approximately two years after foreclosure.
- Prepare to pay a higher interest rate. As long as the foreclosure appears on your credit report, lenders will consider you a higher lending risk. As a result, you'll pay a higher interest rate on all loans you apply for. A foreclosure appears on your credit history for seven years. If you apply for a home loan during this time frame, you can anticipate a higher interest rate and higher monthly payments.
- Keep a steady job to obtain a home loan. After foreclosure, lenders scrutinize borrowers harder than ever to ensure that the borrowers can be trusted to meet their mortgage obligations. Having a steady job demonstrates to a lender that you are reliable and have a stable source of income with which to make payments on your new home loan.
- Set aside enough money to make a significant down payment toward a home loan after foreclosure. Although numerous programs exist for individuals to purchase homes with low down payments, don’t expect to get approved for these programs after a foreclosure. If you can afford to put away 20% of the home’s purchase price, a lender may be more willing to work with you to help you obtain financing. The larger a down payment you can afford to make, the less risk the lender incurs by giving you a home loan.
- Shop around for a home loan lender after foreclosure. Just because you have a past foreclosure, that doesn’t mean that you should accept a mortgage loan from the first lender that offers one. Once you have saved your down payment and given your credit adequate time to recover, you can request quotes from various mortgage lenders without fear. You probably cannot expect a low interest rate, but you may find a lender willing to grant you a reasonable home loan interest rate after foreclosure.