The housing market slump has left many owners without options other than renting. Perhaps you have had to short sale your home or you’ve been foreclosed on your home you thought you could afford or refinance if there was a financial emergency, but when the housing market crashed about 50% since the peak, you were left with no equity (value of home minus mortgage balance).
All is not lost and you can get yourself back on track for purchasing another home in the near future. Many lending institutions will give you a loan even if your FICO credit score is under 600, however the down payment requirement is quite substantial (up to 35%) and interest rates will be higher. To qualify for a mortgage after a short sale or foreclosure, most lenders like to see a FICO score of about 620. Use this helpful table to find out how long you must wait after a short sale, foreclosure or bankruptcy before you can qualify for another mortgage.
Tips for obtaining financing after completing a short sale, losing your home to foreclosure or after bankruptcy:
- If you filed for bankruptcy it will stay on your credit report for 10 years.
- To get better loan rates, wait at least 4 years after filing bankruptcy.
- You will need to wait 5 years after a foreclosure before buying a home again.
- However the FHA guidelines allow for loans only 2 years after a short sale. This means that after 2 years from closing on your short sale, you could qualify for a mortgage with as little as 3.5% down.
- Hard-money lenders will make loans as early as six months after filing bankruptcy or in a foreclosure situation, however they want 20 to 35% down payment. If you had that kind of money, chances are you wouldn’t have had to file or suffer foreclose in the first place.
To boost your chances of obtaining a mortgage again, there are a few things you can do:
- Take out a major credit card. This isn’t as hard as one would think because creditors know you can’t file bankruptcy again for at least 7 years and you no longer have any debt.
- Stay at your current job for at least another year or two.
- Save up a down payment of 10 to 15%.
- Do everything you can to pay your existing bills on time, every time.
