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Saturday, March 30, 2013

Mortgage After Foreclosure

By Mark Cappel

Foreclosure, Bankruptcy or Short Sale in Your Past? You May Qualify For FHA, VA, Fannie Mae, or Freddie Mac Mortgages.

Bankruptcy, short sale, foreclosure, or deed-in-lieu-of-foreclosure do not disqualify you from FHA, VA, Fannie Mae, or Freddie Mac mortgages.

However, if you experienced any of these negative events in the last 7 years, you should expect the mortgage originator to ask you for documents regarding the bankruptcy, short sale, foreclosure, or deed-in-lieu-of-foreclosure, and more scrutiny from the mortgage underwriting department. In other words, expect more hassle and a longer time to loan approval.

But lender rules regarding recent bankruptcies, short sales, foreclosures, or deeds-in-lieu-of-foreclosure are not the only challenges you will find in qualifying for a mortgage. Mortgage lenders want to see the following four qualities in home loan borrowers:

1. Positive credit history
2. Stable income history
3. Low debt-to-income ratio
4. Adequate down payment and reserves

Your damaged credit score and financial health are two big hurdles to cross. Let us look at your credit score first.

Credit Score Damage & Recovery

According to Fair Isaac & Co., the creator of the FICO credit score, credit scores drop a predictable amount for negative events. The typical time to recovery is also predictable, too. The table below shows how much FICO scores can fall, and how long it takes a score to rebound.

Your first task following a major negative event, such as one of those listed above, is to to develop a plan to rebuild your FICO score to a level mortgage lenders use as their minimum threshold.

According the FHA, the minimum FICO score it will accept for an FHA-insured loan is 580. Loan originators can require a higher score for FHA loans, and most do. As a practical matter, strive for a 620 or higher FICO score. Why 620? Many lenders consider a 620 the borderline between a prime and subprime borrower, although other factors go into an applicant’s creditworthiness.

Take a hard look at your credit history. Get a no-cost copy of one of your credit reports from, and review its contents. Read the article Improve Your Credit Report to learn 10 ways to boost your credit score and make your credit profile more attractive to lenders.

No single action you take can reverse the damage caused by a bankruptcy, foreclosure, or short sale overnight. Think of your credit report as you would getting into shape physically. Paying your bills on time is like exercising regularly. Keeping your account balances low, which is called credit utilization, is like eating the right amount of food and not over-eating. Paying off old debts is like shedding fat. None of these actions are difficult on their own, but having good financial habits is like having a personal fitness plan — the results speak for themselves.

Quick Tip: Talk to one of’s lending partners to learn if you qualify for a mortgage.

Make sure you have more than one credit line current. For example, FHA loans generally require a borrower to have two active lines of credit. Ideally, the credit lines should be separate types. A credit type is called a tradeline in the lending business. One type of tradeline is an auto loan. A mortgage is a different tradeline, as is a department store credit card. An example of two separate accounts that are in the same tradeline would be credit cards from Shell Oil and Exxon. The two oil cards would be viewed as a single tradeline, and would not carry the same credit score benefit as an auto loan and a department store credit card, which are viewed as distinct tradelines.

Household Budget

As mentioned at the top of this article, lenders want borrowers who have a positive credit history, stable income history, a low debt-to-income ratio, and adequate down payment and reserves. Creating a household budget prioritizes your expenses. If qualifying for a new mortgage is your top priority, a budget will put you on track to pay off your debts, which lowers your debt-to-income ratio, and help you put aside funds for a down payment. offers a household budget you can download and customize to your household’s needs. also publishes a guide to help you eliminate unhealthy debt and set long-term budgeting goals to help you qualify for a mortgage.

Quick Tip: Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

The circumstances behind your bankruptcy, short sale, foreclosure, or deed-in-lieu-of-foreclosure matter.

The FHA, which insures mortgages for investors who put their money into home loans, is in many instances the most tolerant of bankruptcies and foreclosures if the circumstances behind these events were once-in-a-lifetime occurrences beyond the control of the borrower. On the other hand, the FHA flatly disqualifies anyone who short sold an underwater home in an effort to buy a similar home nearby.

Fannie Mae and Freddie Mac have rules similar to the FHA’s. Both are more tolerant of people who strategically defaulted on their underwater homes.

If you have a recent bankruptcy, short sale, foreclosure, or deed-in-lieu-of-foreclosure and have your financial house in order, consult with several lenders to learn if you qualify for a mortgage. If you believe you qualify based on the information shown on this page, do not be discouraged if the first lender you consult turns you down. Loans to people with recent bankruptcies, short sales, foreclosures, or deeds-in-lieu-of-foreclosure take more time to process and document. If the lender you speak to is busy, he or she may take a pass on you in favor of other clients who need less time to qualify and close for a loan

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Gerharter Realtors is embracing these new mediums of communication to better serve our customers. We have created our e-family to better place important information in your hands to help you with your housing needs. As a part of Gerharter Enterprises we have access to a broader range of additional services and resources to better assist you. Visit me at my Web Site, Blog, Facebook, Twitter, You Tube or Pinterest. Please check out our helpful resources on Sellers Tips, Buyers Tips, Foreclosure Tips, and Mortgage Tips. For a personal consultation please visit our Office.

It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.

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