Mortgage loans backed by the Federal Home Administration offer flexible credit approval guidelines and, in certain situations, are available two years after the completion of a foreclosure. The standard wait for a home loan after a foreclosure is three years, but borrowers who can document an isolated hardship may be eligible for FHA loan approval two years after the foreclosure.
Extenuating Circumstances
FHA.com reports that the FHA makes exceptions for "extenuating circumstances." The circumstances could include long-time unemployment through no fault of your own, divorce or a serious illness. Applicants making a case for a waiting time less than three years must document their hardship and present it to the lender during the application process. Examples of documentation include divorce papers, job termination notices, hospital and doctor bills, copies of federal tax returns and more.
Strategic Defaults
People who walked away from their homes in so-called "strategic defaults" are unlikely to be considered for approval after two years, even if they were suffering from hardships at the time of their foreclosure. Strategic defaults happen when a homeowner voluntarily allows the lender to foreclose on the home. These voluntary foreclosures have been used by some people to get rid of homes that have significantly declined in value because of a housing slump or recession. Other people have used the defaults to escape a neighborhood that has deteriorated.
Credit History
Lenders review a potential borrower's credit history before and after the foreclosure. People who had an excellent credit history before suffering a hardship stand the best chance of being granted an exception to the thee-year waiting period. A credit history marked by collection accounts, judgments, delinquent accounts and frequent missed payments will make approval more difficult.
Credit Score
Overall, FHA is willing to approve loans for credit scores as low as 500, according to "The Washington Post." However, underwriters will require that judgments and collection accounts be paid off and all other accounts brought current before approval. Borrowers with credit scores less than 580 must pay at least 10 percent down. Those with scores above 580 can pay 3.5 percent down. Credit scores range from 350 to 850, with scores of 720 or higher offering the lowest interest rates and best chances for approval. Standard, non-FHA loans typically require a credit score of at least 620 with 20 percent down.
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