Buying a Home after a Foreclosure

October 12 2010 (Chris Moore)
foreclosure - home for sale
When the housing market finally quiets down and the dust has settled, probably one of the most asked questions is going to be, “How long do I have to wait to buy a home if I had a foreclosure?” With millions of homes in foreclosure and possibly a million or more yet to come, the effects of the housing downturn and the subsequent economic downturn will have a heavy toll on families across America for years to come.

So what is the answer to the question? The answer is, no matter what anyone tells you, there is really no definitive answer because what is true today, may not be true tomorrow. With so many affected families for years to come, if lenders want to make loans, they’re going to have ease their guidelines, or the government may have to change loan requirements through Fannie Mae (which is why we’re in the mess we’re in now anyway) or risk prolonging the economic recovery because of a lack of credit worthy buyers.

But if you were to ask that question today, since most loans are sold to Fannie Mae and they buy most of the mortgage loans on the secondary market and probably held the mortgage to your previous loan, we can look at their guidelines for answers.

Waiting Periods to Buy After a Foreclosure:

Buying After a Foreclosure:

The waiting period is generally 5 years, up to 7 years.

Buying After a Foreclosure With Extenuating Circumstances:

The waiting period is generally 3 years, up to 7 years. Extenuating circumstances are things that happen beyond your control, which dramatically affect your ability to continue making payments on your mortgage. Examples of that would be death (not yours, of course), illness, job transfer, or an accident resulting in serious injury. Sorry to say that being unable to afford an increase in payment due to an interest rate increase on your adjustable-rate mortgage is not considered a circumstance beyond your control.

Buying After a Deed-in-Lieu of Foreclosure:

The waiting period is generally 4 years, up to 7 years. A Deed-in-lieu of Foreclosure is when sellers who are behind in payments to the lender will sometimes negotiate with a lender to accept a Deed-in-Lieu of Foreclosure, which means the seller has deeded the property to the lender to avoid foreclosure. But the deed may still show up on a seller’s credit report.

Buying After a Deed-in-Lieu of Foreclosure With Extenuating Circumstances:

The waiting period is generally 2 years, up to 7 years

Buying After a Short Sale:

The waiting period is 2 years. However, if a seller does not have a 60-day late pay, that seller may immediately buy another home. It’s a reason to stay current on your payments while the home is on the market as a short sale.

All waiting periods start from the time that your foreclosure was recorded.

In addition to the waiting period, some loans require 10% down and a minimum FICO score. The home you purchase must be your principal place of residence, not a rental nor a vacation home. Other factors include whether or not there was a bankruptcy and if your other payments (credit cards, auto loans, personal loans, etc.) have remained current and on time and for how long.

Fannie Mae constantly issues new guidelines so if you’re thinking about purchasing another home after a foreclosure, check with a lender to see what the current guidelines are.