Key takeaways
- While a foreclosure stays on your credit report for seven years and getting a conventional mortgage can take longer than that, borrowers can qualify for an FHA mortgage three years after a previous foreclosure.
- How soon your waiting period begins and ends depends on a variety of different factors, including the type of loan you previously foreclosed on.
What is the FHA foreclosure waiting period?
The FHA foreclosure waiting period is when the FHA requires borrowers to wait before applying for a new FHA mortgage. In general, the FHA foreclosure waiting period is three years. However, extenuating circumstances can reduce that time period to one year.
When does it begin?
The FHA foreclosure waiting period begins at a specific time based on your foreclosed mortgage and what type of loan was used. If your previous loan was another FHA loan, the waiting period begins when HUD pays the mortgage insurance claim to your previous lender. On the other hand, if it’s not an FHA loan, the waiting period begins on the day of the sheriff’s sale of the home. If your previous lender holds onto the property, this can delay the start of an FHA waiting period.
How long does the FHA foreclosure waiting period last?
The FHA foreclosure waiting period is three years with a start date that is dependent on the terms above. There are occasions when this three-year period can be shortened to one year when a borrower can show that the foreclosure was due to factors beyond their control, such as:
- Serious illness or death of the primary wage earner
- Ex-spouse failed to make mortgage payments after a divorce
In order to qualify for this shortened waiting period, a borrower would also need to show that they have re-established and have good credit at the time of application.
What happens during the FHA foreclosure waiting period?
During the FHA foreclosure waiting period, borrowers can take the time to improve their creditworthiness further and be prepared to apply for an FHA mortgage when the waiting period is over. If waiting is not an option, borrowers can opt for a non-qualifying, or subprime, mortgage that does not require any waiting period. However, remember these mortgages can be a riskier choice, often with much higher interest rates and payments.
Factors that determine the length of the waiting period
While the three-year waiting period is standard for an FHA mortgage, there are factors that can make that mortgage period longer or shorter. As mentioned above, certain circumstances can reduce the waiting term to one year when specific requirements are met. Depending on your previous foreclosure, the waiting period can be longer than three years. For example, if you foreclosed on a conventional mortgage three years ago, you may assume you are eligible. However, if the lender did not put the home up for a sheriff’s sale until two years after the foreclosure, you will have to wait three years from the date of that sale.
Tips for buying a home after foreclosure
Whether you are nearing the end of your waiting period or just beginning, now is the perfect time to help boost your creditworthiness and prepare for applying for a new home loan. These tips will give you a roadmap of items to address as you prepare.
Reduce your outstanding debt.
When applying for a new mortgage, you want to have a low debt-to-income ratio, which is vital in determining loan approval. While the maximum DTI for an FHA loan is 57%, you ideally want to be below 43%. Pay down any outstanding debt in order to reduce this number.
Regularly monitor your credit reports.
It is important to monitor your credit reports on a regular basis and review them for possible errors that can include duplicate accounts reporting, former spouse’s debt, and even fraudulent accounts that you do not know of. If you find errors, contact the listing institution and the credit agency to resolve them. In addition, as you approach the end of your waiting period, you will want to make sure your name is removed from the Credit Alert Verification Reporting System or CAIVRS. This system tracks those who have defaulted on government loans, such as FHA. You will need to be off this list before applying for FHA approval.
Pay bills on time every month.
Payment history is another important factor when it comes to mortgage approval. Not only does it show a lender that you make payments on time, but it also plays a major role in your credit score. You want to ensure all monthly payments are made on time and you have no past-due balances on any of your accounts.
Grow your savings
Buying a new home will require cash for down payments and closing costs, as well as other expenses such as homeowners insurance and property tax. Building your savings account with enough to cover these expenses as well as three to six months’ worth of living expenses shows you have established a financial cushion and are well prepared to purchase a new home.
Frequently asked questions
Here we answer some common borrower questions when it comes to FHA foreclosure waiting periods and FHA mortgages.
1. When can you apply for a new mortgage after foreclosure?
When you can apply for a mortgage after a foreclosure depends on the type of new mortgage you are applying for and the type of mortgage previously foreclosed on. As we mentioned above, a new FHA loan will require a three-year waiting period. If you are applying for another type of mortgage, the waiting periods vary, as shown below:- Conventional: seven-year waiting period
- FHA: three-year waiting period
- VA: two-year waiting period
- USDA: three-year waiting period
- Nonqualifying: no waiting period
2. Can you get a second FHA loan after foreclosure?
Yes, borrowers can qualify for a second FHA loan even after foreclosing on a previous FHA loan as long as the foreclosure waiting period is met.
Understanding the FHA foreclosure waiting period
While many borrowers often assume that acquiring a new mortgage after foreclosure is impossible, the fact is you just have to meet the requirements and waiting period. While you wait out the waiting period, you have ample time to work toward increasing your creditworthiness and better preparing to apply for a new home loan.
Helping you navigate the home-buying process
At Hero Home Programs, we understand how confusing it can be to navigate through the home-buying process. Our team of experts understands that life and foreclosures happen, but it doesn’t mean borrowers can’t purchase their dream homes. If you are looking to purchase a new home but have a history of foreclosure, our team can help. Schedule a consultation today.
