How To Qualify For An FHA Loan After Foreclosure

If you recently experienced foreclosure or about to go through the process, you likely think it's impossible to get another mortgage. Like a bankruptcy, a foreclosure lingers on your credit record for several years. FHA (Federal Housing Administration) loans are available for borrowers with less than stellar credit, or no credit, and they forgive bankruptcies and foreclosures easier than a primary mortgage company. Here are some tips to qualify for an FHA loan after foreclosure.

Don't Apply Right Away 

You won't be eligible for an FHA loan in most situations for three years, but the FHA lowered the wait time to get a new loan to one year in cases of foreclosure, short sales, or deed-in-lieu of foreclosure, meaning the borrower voluntarily gives the property back to the lender to avoid foreclosure. Borrowers who use 'strategic default', or walked away, will not qualify in three years.

The three-year period starts on the date of the foreclosed property sale. Save property deeds, court documents, and property tax receipts for proof of date. During the wait period, search for lenders approved by HUD ( department of Housing and Urban Development), which include credit unions, banks, or mortgage companies.

Explain Your Situation to the Lender

If you had a financial set back such as a job loss causing a drop of 20% income for six months, death of the primary wage earner, or extended illness, write a letter of explanation to the lender. The lender may waive the three- year wait period under the Extenuating Circumstances program.

You will need to provide tax forms ,medical bills, job termination notices, and W-2 forms to prove the change in circumstance. In addition, you are required to undergo an hour counseling session with an agency approved by HUD to analyze the cause of the situation. If you qualified under the Extenuating Circumstance Program, show you have recovered, and you are able to afford payments.

Reestablish Credit

Get a copy of your credit report to check for errors. You are allowed a free copy once annually of your credit report from the three major credit bureaus. Contact the corresponding bureau if you find any errors. Make a favorable impression on the lender to demonstrate responsibility by keeping debts low, and paying them on time.

Aim for a credit score of 580 to qualify for the 3.5% down payment. You will be required to put down 10% for credit scores under 580.

It is still possible to buy a home under FHA after a foreclosure. but keep in mind the lender has the final say in the approval. After you reestablish yourself, you can qualify for a traditional home loan. 

For more information, contact a company like MCS Bank