Many people who have faced foreclosure worry that they may never be able to obtain another mortgage again, no matter what.  That worry may not actually be justified. Obtaining a mortgage after a foreclosure depends upon the specific circumstances of that foreclosure and how you’ve managed your finances and credit history going forward from that foreclosure.

Generally, a borrower who has faced foreclosure is required to wait seven years before applying for a new conventional home loan, according to Ray Rodriguez, the regional sales manager of TD Bank.  The FHA and U.S. Department of Agriculture require a three year waiting period.  The Department of Veterans Affairs requires two years.

It is possible to speed up the process, particularly for a conventional mortgage, if you can demonstrate through documentation that the foreclosure was the result of a significant financial hardship from which you’ve recovered.  “Significant financial hardship” may be defined as a layoff situation, business failure, divorce, major health issue…there is no one size fits all here.  Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage, advises people to “…concentrate on how you’ve recovered from the event rather than making excuses for the event.”

To rebuild your credit score, lenders like a minimum score of 580, to see that you pay your bills on time and maintain low balances on your credit cards.  It also doesn’t hurt to regularly check your credit score and reports to make sure there are no inaccuracies.

Also make sure that you keep and maintain a well documented, finance related paperwork file that includes all your post-foreclosure pay stubs, banking and brokerage statements, tax returns, etc.  And save as much as you can because you’ll likely need to pay at least 10% more for your new down payment than the one you paid the last time you applied for a loan.

If you explore non-prime lenders as a way to save time in this process of obtaining financing after experiencing foreclosure, be aware that non- prime lenders will charge higher fees and interest rates and will offer less favorable terms.  Adjustable rates with higher margins rather than standard 30 year packages may be the only option made available to you by non-prime lenders.

Obtaining a new mortgage after experiencing foreclosure is, in fact, possible.  To do so, keep these things in mind. The three legs of the mortgage qualifying stool are income, credit and assets.  Your credit score is the first thing a lender will look at…after that comes liquid assets.  Lastly, pay down your debt so that your debt/income ratio is minimal.

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