When Can I Buy Again After Foreclosure?

We occasionally have questions from people in the community who are having housing issues, ask whether they will ever be able to buy a house again if their existing property is lost in foreclosure.

Here is some information that I hope will help you answer their questions.

  • Mortgage giants Fannie Mae and Freddie Mac make people wait seven years after a foreclosure before they will approve a new home loan
  • FHA may approve new home loans three years after foreclosure, providing the buyer re-established good credit and they have the ability to pay the mortgage.
    • FHA insures home loans so banks can be more flexible in making loans with lower down payments and more flexible income requirements.
    • FHA, which is self-supporting, was created in 1934 during the depths of the Great Depression to try to revive the housing market.

Additional details:

  • Borrowers are generally not eligible for a new FHA-insured mortgage if, during the previous three years, their principal residence or other real property was foreclosed, or they gave a deed-in-lieu of foreclosure.
    • Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of well documented extenuating circumstance beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure and they have sufficient income to support monthly obligations including the new mortgage.
    • Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower’s loan was current at the time of the divorce, the ex-spouse received the property, and the loan was later foreclosed.
    • The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

A borrower in default on a mortgage at the time of a short sale is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

Exception: A lender may make an exception to that rule if the default was due to well documented circumstance beyond the borrower’s control, such as the death of a primary wage earner, or long-term uninsured illness.  If the borrower passes the hardship test, then their credit report must also show they had good credit and good pay histories prior to the documented default.

On a short sale, a long-term job loss or a layoff would be considered a circumstance beyond the borrower’s control.

Note: Borrowers are not eligible for a new FHA mortgage if they pursued a short-sale on their principal residence simply to take advantage of declining market conditions and unload their over-valued mortgage so they could turn around and purchase a similar or superior property at a reduced price.

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