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Can You Qualify for Mortgage if Home is in Foreclosure?

Can you qualify for a mortgage if your home is in foreclosure?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

In short, it is nearly impossible to qualify for a new mortgage if your current mortgage is in foreclosure. Additionally, lenders apply waiting periods after a foreclosure before you can apply for a mortgage.

The waiting periods following a foreclosure are the longest out of derogatory credit events such as a bankruptcy, short sale or cured default because you did not repay your mortgage and the lender seized the underlying property. The waiting periods following a foreclosure before you can qualify for a new mortgage are:

Conventional mortgage: seven years

FHA mortgage: three years

VA mortgage: two years

The waiting periods are shorter if you experienced an extenuating circumstance such as a job loss, medical illness or divorce (for a conventional mortgage) that contributed to the foreclosure. The waiting periods following a foreclosure for a borrower with extenuating circumstances are:

Conventional mortgage: three years

FHA mortgage: one year

VA mortgage: one-to-two years

Please note that you are required to provide documentation to verify the extenuating circumstances or events that led to the foreclosure if you apply for the shorter waiting period. For example, you may be required to provide a job layoff notice, medical records or divorce agreement, depending on your situation.

Review Waiting Periods Following Negative Credit Events Before You Can Apply for a Mortgage

In addition to being required to wait before you can apply for a mortgage, a foreclosure also impacts your credit score. A foreclosure can cause your credit score to drop 160 points or more and remains on your credit report for seven years. The lower your credit score, the higher your mortgage rate. If your score is too low, you may not be eligible for certain mortgage programs.

So even if the applicable waiting period has passed, the foreclosure may impact your ability to qualify for a mortgage or reduce the loan amount you can afford. In an ideal scenario, as you restore your credit and your score rebounds, the potential impact of the foreclosure diminishes over time. In the near term, however, having a foreclosure can make it very difficult to qualify for a mortgage.

So if you want to buy a home with your fiance before your foreclosure is finalized, your best approach is for your fiance to apply for the mortgage as a sole applicant. Your fiance can add you to the property title after the mortgage closes so you would both own the property, although she would remain solely responsible for the mortgage.

In this case, your fiance is required to qualify for the mortgage solely based on her income, debt, credit score and other factors. Your income, debt, score and foreclosure are not factored in to determine what size mortgage she qualifies for on her own.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine what size loan you can afford

We also recommend that your fiance applies for the mortgage and buys the home before you get married, if possible. There is a chance that if you are married your credit profile could impact your spouse's ability to qualify for a mortgage, even if she applies for the mortgage as a sole borrower, although this technically should not happen.

The table below outlines mortgage rates and closing fees for leading lenders. We recommend that you contact multiple lenders to find the best mortgage terms. Shopping for your mortgage is the best way to save money on your loan.

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Current Mortgage Rates as of July 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

If you do not want to wait to apply for a mortgage following your foreclosure, you may want to consider a private money lender, also known as a hard money lender, as they do not apply waiting periods. Some applicants pursue the private money option when they realize they cannot afford the loan amount they want if only one personal applies for the mortgage.

With this approach, you and your fiance get a mortgage through a private money lender and then refinance that loan with a standard mortgage after the waiting period has expired and hopefully your credit score has improved.

Review What You Should Know About a Private Money Mortgage

If you apply for a loan with a private money lender be sure to fully understand the higher interest rate, costs and fees, including any pre-payment penalty, charged by the lender.

You can use the FREEandCLEAR Lender Directory to search for private money lenders in your state.

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Sources

Mortgage Waiting Periods After Derogatory Credit Events: https://www.fanniemae.com/content/guide/selling/b3/5.3/07.html

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%
Current Mortgage Rates as of July 21, 2019
  • Lender
  • APR
  • Loan Type
  • Rate
  • Payment
  • Fees
  • Contact
View All Lenders

%

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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