Buying a home after foreclosure

Waiting periods after foreclosure

If you’ve gone through a foreclosure, you won’t be able to jump right back into homeownership and get a mortgage. Because you’ve failed to make payments on the home you had, you’re considered a risky borrower, and future lenders will require you to wait a certain period before they’ll consider your mortgage application.

The exact wait time will depend on the type of loan you're applying for and whether your foreclosure was tied to something outside of your control, like a serious illness or job loss.

Conventional loan waiting periods

If you took out a conventional loan backed by Fannie Mae or Freddie Mac, the standard waiting period after a foreclosure is seven years. That said, you may only have to wait three years if you can prove extenuating circumstances.

Extenuating circumstances are essentially events beyond your control that affected your finances and your ability to repay the home loan, such as a medical emergency or unexpected job loss. Note that if this applies to you, you'll need to provide documentation of the extenuating circumstances to support your case.

FHA, VA and USDA loan waiting periods

Government-backed mortgages, like FHA, VA and USDA loans, offer more secure and accessible homeownership options compared to conventional loans. The waiting periods for these types of loans are typically shorter as well.

• Federal Housing Administration (FHA) loans typically require a three-year waiting period starting from the date the foreclosure process is officially complete. Like with conventional loans, you may be able to reduce this wait time if you can prove that the foreclosure was due to circumstances outside of your control.
• U.S. Department of Agriculture (USDA) loans are geared toward buyers in rural areas, and they typically come with a three-year waiting period post-foreclosure.
• VA loans are more lenient than FHA loans and USDA loans. If you're a veteran or active-duty service member, you’ll likely only need to wait two years after foreclosure.

Rebuilding your credit after foreclosure

Foreclosure can seriously damage your credit score and lower it by over 100 points. This negative record will also stay on your credit report for seven years, which could affect your ability to qualify for mortgages and other loan types. That said, you’re not stuck forever. Here’s what you can do to start rebuilding your credit and work toward homeownership again.

Steps to improve your credit score

• Pay all your bills on time: Your payment history makes up 35% of your credit score, so one of the most straightforward ways to improve your creditworthiness is by paying bills on time and in full each month.
• Lower your credit card balances: Credit utilization is another factor that determines your credit score. Ideally, you’ll want to keep your credit utilization under 30%. And if you’re an overachiever, aim for 10%.
• Avoid opening new credit accounts: Opening new credit accounts lowers the average age of your total accounts, which then lowers your length of credit history and subsequently, your credit score. So if you’re applying for a mortgage soon, avoid opening new credit accounts.
• Get a secured credit card: Another way to rebuild your credit score after foreclosure is by getting a secured credit card. A secured credit card is a type of card that requires a refundable security deposit to open the account and is designed to help you improve your credit score.
• Check your credit reports: If you haven’t already, check your credit reports for errors or outdated information that could be dragging your score down. You can get a free copy of your credit report from each bureau at AnnualCreditReport.com.

Exploring loan options after foreclosure

Once your waiting period is over and your credit starts to improve, you’ll have several mortgage options to choose from.

Government-backed options like FHA, VA and USDA loans are often the most accessible after foreclosure due to less stringent credit and down payment requirements.

You can also consider nonqualified mortgages (non-QMs), which are loans that don’t follow standard lending rules set by Fannie Mae and Freddie Mac. Although they’re typically easier to qualify for, they usually come with higher annual percentage rates, bigger down payments and stricter income documentation.

No matter which route you choose, make sure you’ve compared lenders carefully and fully understand the terms before signing on the dotted line.

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Preparing for homeownership again

Before you dive back into the housing market, you’ll want to take a step back and check if your finances are truly ready. One of the first things mortgage lenders look at is whether you have steady income that can support a mortgage payment, so make sure you’ve been at the same job for a while or can show consistent income.

You’ll also want to make sure you have enough saved for the down payment, along with closing costs, moving expenses and future home repairs. If you haven’t already, start putting money aside each month toward these costs so you’re financially prepared when the time comes.

“The market may forgive your past, but lenders want to see you’ve learned from it,” said Jacob Naig, a real estate investor, agent and owner of We Buy Houses in Des Moines in Iowa. “Concentrate on building that savings and be honest with your real estate professional so they can connect your goals with the right loan programs.”

It’s also smart to sit down and build a realistic budget and factor in everything, including your mortgage payments, property taxes, insurance, utilities and regular maintenance. If you’ve recently gone through a foreclosure, use the waiting period to reset your finances and rebuild a solid foundation.