What Are the Chances of Getting a Mortgage With a Foreclosure and Bankruptcy on My Credit Report?

Qualifying for a mortgage with a foreclosure and bankruptcy on your credit report presents a significant challenge. However, approval is possible after several years of making on-time payments on other bills while keeping debt levels low. Lenders understand financial hardships caused by job loss, illness, divorce or other reasons. What happens after the bankruptcy and foreclosure is the most important criteria in credit rehabilitation and, eventually, qualifying for a new mortgage.

Fresh Start

Foreclosure information remains on credit reports for seven years and bankruptcy for 10. Some mortgage lenders offering outrageous interest rates will lend to people who recently have completed bankruptcy. However, standard mortgage approval at reasonable interest rates requires a waiting period after foreclosure or bankruptcy.

Guidance

Mortgage lending standards are influenced by Fannie Mae, a federal agency. Many mortgage companies follow Fannie Mae guidelines, which include requirements for people with bankruptcy and foreclosure information on their credit reports. Fannie Mae usually requires people to wait five years after foreclosure to qualify for a new mortgage and four years after bankruptcy.

Exceptions

Some flexibility exists in Fannie Mae guidelines. The agency allows for shorter waiting periods for people who filed for bankruptcy and foreclosure because of illness, job loss, divorce or similar situations. People seeking exceptions to the standard waiting period must submit formal documentation of their hardship, such as divorce papers, job termination notices or medical bills. People with approved extenuating circumstances are eligible for new mortgages two years after bankruptcy and three years after foreclosure.

Credit Rehabilitation

Fannie Mae requires people with bankruptcy and foreclosure to re-establish credit with an excellent payment history. No more than two past-due payments are allowed on credit cards or installment loans over a 24-month period leading to the mortgage application. A housing-related credit reference, such as apartment rent, is required, with no late payments over 12 months. The agency also requires that the borrower not have new adverse information on credit reports such as judgments or collections.

Alternatives

Some lenders will grant exceptions to Fannie Mae standards -- but at higher interest rates. Also, mortgage loans backed by the Federal Housing Administration feature similar waiting periods as Fannie Mae loans, but underwriters are allowed greater flexibility while reviewing credit history since the bankruptcy and foreclosure.