Getting a mortgage after foreclosure can seem like an impossible feat, especially with the severe damage it causes to your creditworthiness.
The good news is you can eventually own a home again — usually after three to seven years. You’ll need to practice patience and implement healthy financial habits to make it happen.
If you’re wondering how long after foreclosure you can get a conventional mortgage, or any mortgage for that matter, you aren’t alone. In the third quarter of 2022, 67,249 properties were foreclosed upon — a rate 167% higher than the same time a year before, according to real estate data from ATTOM.
A foreclosure mark on your credit report sticks with you for years, but it doesn’t mean you have to give up all hope of becoming a homeowner again. There’s usually a waiting period before you can buy a home again, and each loan program has its own guidelines.
| Home loan program | Foreclosure waiting period | With extenuating circ*mstances |
|---|---|---|
| Conventional loan | 7 years | 2-3 years |
| FHA loan | 3 years | Less than 3 years |
| VA loan | 2 years | Less than 2 years |
| USDA loan | 3 years | Less than 3 years |
| Nonqualifying loans | None | None |
Getting a mortgage after bankruptcy
Qualifying for a mortgage after bankruptcy is usually quite similar to qualifying with a foreclosure, deed-in-lieu or short sale on your record. You’ll have to undergo a waiting period whose length varies depending on the loan program and whether you filed for Chapter 7 or Chapter 13 bankruptcy. You can expect to wait between one and four years unless you’re seeking a nonqualifying loan.
Conventional loans after foreclosure
Conventional loans aren’t backed by the federal government and typically require a minimum 620 credit score and a 3% down payment to qualify. The conventional loan foreclosure waiting period is typically seven years, though it may be shortened to two to three years in extenuating circ*mstances. Examples of this might include:
- Death of a wage earner in the household
- Divorces in which an ex-spouse defaults on a mortgage that was current at the time of the divorce
- Expensive medical emergency
Keep in mind: With a conventional mortgage, you might be required to put down more than the minimum for your home purchase if you qualify for the shortened, three-year waiting period due to extenuating circ*mstances. The maximum loan-to-value (LTV) ratio allowed is 90%, which means you’ll need at least a 10% down payment.
FHA loans after foreclosure
Home loans backed by the Federal Housing Administration (FHA loans) require a 580 credit score to make the minimum 3.5% down payment. You may qualify with scores as low as 500 to 579 if you put at least 10% down.
→ The FHA foreclosure waiting period is three years and applies to a foreclosure, a deed-in-lieu of foreclosure and a short sale, according to the U.S. Department of Housing and Urban Development (HUD).
VA loans after foreclosure
The U.S. Department of Veterans Affairs (VA) guarantees VA loans for eligible military borrowers. In most cases, there’s no down payment required, though lenders may expect to see a minimum 620 credit score.
→ The VA foreclosure waiting period is two years.
USDA loans after foreclosure
USDA loans are backed by the U.S. Department of Agriculture (USDA). The zero-down-payment program caters to rural homebuyers with low to moderate incomes and requires a 640 credit score for automatic approval.
→ The USDA foreclosure waiting period is three years.
Nonqualifying mortgage loans after foreclosure
Also known as “nonprime” loans, nonqualifying (non-QM) mortgages are loans that don’t follow a set of rules established by the Consumer Financial Protection Bureau to protect borrowers. But while they may have loan terms that are riskier than average — like balloon payments, negative amortization or high interest rates and fees — they offer something that QM lenders don’t: no waiting period after foreclosure or bankruptcy.
How foreclosure impacts your credit history
The biggest hurdle to getting a mortgage after foreclosure is recovering from the significant hit to your credit score, which lasts several years.
Let’s say your credit score was approximately 780 before the foreclosure. Your score could drop by as many as 160 points, to 620, after the foreclosure hits your credit report, according to data from FICO. If your score was around 680 before the foreclosure, it could drop to 575, dramatically limiting your mortgage options.
→ It can take up to seven years to fully recover from a foreclosure judgment. That’s how long the ding on your credit score lasts after foreclosure.
Whether you’re just at the beginning of your waiting period or somewhere in the middle, keep the following tips in mind to boost your chances of buying a house after foreclosure.
1. Check your credit reports for errors
Pull your credit reports from each of the three major credit reporting bureaus — Equifax, Experian and TransUnion — and review each of them for errors. Credit report errors are common, according to FICO, and can include:
- Credit card or loan payments applied to the wrong account
- Duplicate accounts showing up on your report, leading lenders to believe you have more open credit lines and debt than you actually do
- A former spouse’s debt appearing on your report after a divorce
You can access your credit reports from the three bureaus at AnnualCreditReport.com, and you’re entitled to a free copy of each bureau’s report once per year. If you find any errors, reach out to both the institution that reported the error and the credit agency showing that information.
2. Pay your bills on time
Your payment history generally accounts for the biggest chunk of your credit score — 35%. Lenders pay close attention to whether you pay your monthly debts on time and use that information to assess whether you’re a creditworthy borrower.
The following considerations are factored into the payment history portion of your credit score:
- How long your payments were late
- How recently you were late
- Your past-due balances
- The number of past-due accounts you have
Establish and maintain on-time payments for your current bills to start building a healthier history and score.
3. Reduce your outstanding debt
Your debt-to-income (DTI) ratio — the percentage of your before-tax income used to make monthly debt payments — arguably holds a bit more weight than your credit score. It’s a high priority on the list of factors that mortgage lenders scrutinize when approving you for a home loan.
Pay down your outstanding debt to increase your chances of mortgage approval. As a general rule of thumb, your total DTI ratio, including your new mortgage payment and all monthly debts, shouldn’t exceed 43%.
4. Save, save, save
You’ll need cash for your down payment and closing costs, plus other line items like:
- Homeowners insurance
- Homeowners association (HOA) fees
- Maintenance costs
- Property taxes
- Unexpected expenses
Give yourself some breathing room by saving three to six months’ worth of living expenses in an emergency fund, which you can use instead of taking on more debt. Avoid depleting your savings when you do buy a home again so that you have a financial cushion if you fall on hard times.
