Can I Buy a Home After Foreclosure?

Can I Buy a Home After Foreclosure?

Buying a home after foreclosure is possible, but lenders will want to see that your credit has improved and you can handle the loan payments. There is typically a waiting period to qualify for a mortgage after foreclosure, which can vary depending on the loan type and lender. Showing that you're financially stable and making a larger down payment can improve your odds of approval.

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How Soon Can I Buy a Home After Foreclosure?

Even if your credit has improved, having a foreclosure on your credit report imposes a waiting period that restricts when you can qualify for certain types of mortgages. Lenders may shorten the waiting period if you can document that foreclosure was due to extenuating circumstances—a one-time event outside your control, such as a job loss, illness or divorce.

Fannie Mae and Freddie Mac Loans

Conventional mortgage loans follow rules set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). The standard waiting period to get a Fannie Mae or Freddie Mac loan after foreclosure is seven years, but it can sometimes be reduced to three years.

Fannie Mae and Freddie Mac loans typically require a minimum 3% down payment and 620 credit score.

FHA Loan

The waiting period for a Federal Housing Administration (FHA)-backed mortgage is typically three years after foreclosure.

FHA loans typically require a minimum 500 credit score, making them a good option for borrowers with less-than-optimal credit. Down payments can be as low as 3.5% depending on your credit score.

VA Loan

Loans backed by the Department of Veterans Affairs (VA) typically have a two-year waiting period after foreclosure.

VA loans are available to eligible veterans, service members and surviving spouses and can be obtained with no down payment. Lenders generally require a minimum credit score of 620 to 670.

USDA Loan

Mortgages backed by the U.S. Department of Agriculture (USDA) generally require a three-year waiting period after completion of foreclosure.

USDA loans are designed for low-income suburban and rural borrowers and require no down payment. You'll typically need a credit score of 640 to qualify, although some lenders accept credit scores as low as 620.

Nonqualified Loan

There is no set waiting period for nonqualified loans; depending on the lender, waiting periods may range from as little as one month to two years. Nonqualified loans don't meet federal guidelines for qualifying mortgages, so lenders have more flexibility in evaluating your ability to repay.

Borrowers who can't get other types of mortgages due to self-employment, foreclosure or other credit issues may find nonqualified loans a good solution.

Learn more: What Type of Mortgage Loan Is Best?

How to Buy a Home After a Foreclosure

Following these steps can help you buy a home after a foreclosure.

1. Wait for Time to Pass

A foreclosure stays on your credit report for seven years, but depending on the lender and the type of loan you're seeking, you won't necessarily have to wait that long to buy a home. If you're eligible, opting for a VA, FHA, USDA or nonqualified loan can shorten the wait. So can proving extenuating circumstances when applying for a conventional loan.

2. Rebuild Your Credit

To help improve your credit quickly, focus on the following:

• Pay all your bills on time since payment history is the most important factor in your credit score.
• Reduce your credit card balances to lower your credit utilization ratio.
• Avoid new credit applications, which can lower your credit score.

Learn more: How to Improve Your Credit Score Fast

3. Improve Your Financial Profile

Lenders will examine your finances carefully to evaluate your ability to repay the loan. To boost your odds of approval:

• Pay down debt to lower your debt-to-income ratio (DTI).
• Save for a down payment.
• Build an emergency fund so you have a financial cushion.
• Demonstrate a stable income.

Tip: Consider signing up for Experian Boost^®ø. This free feature adds your eligible rent, streaming service, phone, insurance and utility payments to your Experian credit report, which could quickly improve your credit scores.

4. Compare Loan Options Early

Understanding the different loan options and eligibility for each, such as minimum credit score and down payment requirements, can help you determine which type of loan you may qualify for. You can start exploring alternatives while you work on improving your financial picture, or enlist a mortgage broker to help you find the best type of loan.

Learn more: What Credit Score Do I Need to Buy a House?

Frequently Asked Questions

The Bottom Line

Having a foreclosure in your past won't necessarily prevent you from buying a home, but you can usually expect a waiting period before you can qualify for a mortgage again. Use this time to get your finances and credit in good shape.

You can check your FICO^® Score^Θ for free from Experian and get insights on things you can do to improve it. Experian also offers free credit monitoring to help you keep tabs on your progress. You'll be able to track your FICO^® Score and get alerts of important changes or suspicious activity on your credit profile, so you can quickly take action to protect your credit.