Life Events

By Kristian Jorgensen, Mortgage Loan Officer

If life has taken you down a rocky road that resulted in a foreclosure, it’s not a dead end. Buying a home again is possible for you. Here you will find the necessary information to use as tools to dig yourself out of the ditch and get back on the road to homeownership.

Waiting Period

A certain amount of time must pass after the foreclosure is complete before you will be able to buy a home again. These waiting periods differ depending on the loan program. However, there is a unique program with Michigan First Mortgage that might allow you to buy a home immediately following a foreclosure, depending on the circumstances, called a Turning Point Loan. The waiting periods for the different loan types are as follows:

  • Conventional – 7 years, or as little as 3 years with extenuating circumstances (i.e. death of the wage earner for the home) and stricter qualifying criteria.
  • FHA – 3 years, or less with extenuating circumstances and re-established good credit since the foreclosure (usually at least a year).
  • VA – 2 years (typically), but can vary depending on if the mortgage that was foreclosed upon was a VA loan, or another type of loan, as well as other circumstances.
  • USDA – 3 years.
  • Turning Point Loan – No waiting period with extenuating circumstances.

Qualifying Profile

You won’t want to sit idly by as you wait-out the waiting period. It is important to use this time to rebuild and strengthen your qualifying profile, which is primarily comprised of credit, income and assets. When lenders are considering granting you a loan, they will weigh out the risk of lending you money based on these factors. Having a foreclosure in your past increases the risk to lend to you, so you will need to strengthen your qualifying profile to help bring the risk level back down.

Credit is the foundation for becoming approved for a loan. To build up your credit, you will want to clear up any collections, resolve disputes, check for errors on your credit, refrain from stacking up debt, and of course be sure to make all your payments on time. After you take care of derogatory credit items, it can take some time before your credit score starts to head north, so you will want to start working on your credit as soon as possible. A higher credit score equates to lower risk.

For some, a foreclosure may have been caused by the loss of a job or a major cut in wages. Re-establishing income will be important. For any loan candidate, having a history of consistent income and steady employment for two years is a major factor.

One of the best indicators that you are responsible with money is to have lots of money in the bank. Save, save, save. You not only want to have enough money to cover the down payment and closing costs for your next home purchase, you want to have extra money left over in reserves. Lenders love to see a borrower with enough money in reserves to cover their mortgage payment for 6 months or more.

On The Road Again

If you’ve had a foreclosure, now is the time to create a new route to homeownership by building your credit, establishing steady income, and putting ample money away in the bank. The waiting period will be over before you know it and you’ll be at your destination ready to buy your next home.

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