Can I Buy Land With a Foreclosure on My Credit?

Foreclosure is one of the most damaging credit events possible and remains on credit reports for seven years. A foreclosure history makes buying land with a bank loan difficult or even impossible until the debtor's credit improves significantly. Even then lenders may require down payments of up to 50 percent for the purchase of undeveloped land such as rural acreage. Bankrate.com reports that lenders feel undeveloped or raw land represents increased risk for the bank, even if the borrower does not have a foreclosure.

Long Wait

Although approval standards are rigorous, people with foreclosure information on their credit reports can qualify for land loans. However, they should expect to wait up to five years after foreclosure to qualify. That is the standard that Fannie Mae, a federal agency, sets for standard mortgage loan approvals after foreclosure. Standards for land loan approvals are similar although not officially outlined by Fannie Mae as of March, 2011. Lenders are free to set their own approval guidelines, but usually follow Fannie Mae standards.

Risks

Lenders are reluctant to make loans for undeveloped land because the collateral for the loan -- the undeveloped land -- is not in use. That makes it easier for the borrower to walk away through foreclosure, leaving the raw land with the lender. This creates additional scrutiny for people with a previous foreclosure. Lenders will need to know the circumstances behind the foreclosure and must receive assurances that it will not happen again.

Standards

Bankrate.com reports that land purchased for the immediate building of a home is less risky for lenders because a construction loan required to build the home will pay off the land loan. People with foreclosure history are more likely to gain approval for land related to home construction than for raw land not slated for development. Credit requirements are lofty for land purchased purely for investment purposes and people with foreclosure history may not qualify.

Credit Repair

People seeking to buy land with a foreclosure on their credit report should seek guidance from a loan officer at their bank or credit union before applying. Ideally, the foreclosure should be three- to five-years-old with the prospective loan applicant having established pristine credit since. That includes no late payments on rent or mortgage payments for 12 months, and not more than two past-due payments on installment loans and credit card payments for 24 months. A credit score of at least 720 is ideal, although approval at higher interest rates is possible with a lower score.