FHA loan 3 years after a foreclosure finalized with a low credit score (650)???

Asked by ACS, 07070 Tue Jul 5, 2011

I foreclosed on my FL home over 3 years ago, moved back up to NJ and am now making 4-5 times my earnings. Unfortunately my credit score is slowly increasing and is around 650 right now. Will i be able to get a FHA loan with a reasonable interest rate? I could also put more than 3.5% down if need be. Comments appreciated!

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Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Tue Jul 5, 2011
Congrats on getting your scores back up there after the foreclosure. As long as it's been 3 years since the foreclosure sale, and you've had re-established credit for at least 12 months, with no new negatives after the foreclosure in the most recent 2 years, then yes you should be in pretty good shape to get an FHA loan with just 3.5% down, or you can put more down if you'd like as well. Interest rates would be no different than if you never had a foreclosure, as there isn't a "rate adjustment" for people with foreclosure - it is just based on your credit score, and with FHA financing a 650 credit score gets rates in the middle 4's on a 30-year fixed.

If you need help, have more questions, or want more information I'd be happy to help. I do a ton of FHA loans, lend in all 50 states and I'm helping someone right now in Somerset County.
0 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Wed Jul 6, 2011
You are welcome - yes if it sold (legally was no longer yours) in January 2009, and it wasn't due to extenuating circumstances, then you'd have to wait until the 3-year anniversary, but really I'd recommend you wait until February of 2012 because FHA's automated underwriting system can't determine if a foreclosure was on January 1st or January 30th, it just thinks it was sometime in January, and so to get a favorable decision from the automated underwriting system you'd want to wait to have your credit checked until February 1st - you'll get easier underwriting treatment at that point.

However, if it was due to extenuating circumstances, and you have the 12 months of re-established credit and the no new delinquencies since, then you could be eligible for an FHA mortgage right now, but under the tougher underwriting guidelines (lower debt ratio limits, verification of rental history if you've been renting since, would be good to have some reserves still in the bank after closing, etc.).

If you are VA eligible (a Veteran or an unmarried widowed spouse of a Veteran), then VA loans just require 2 years from foreclosure in any situation. Obviously not everyone is eligible for a VA loan.
1 vote
Terri Club, , Arizona
Sun Apr 21, 2013
I had a client who wanted to buy a home in Arizona, but he had a foreclosure. After researching the web I found a loan program at http://www.cfsflex.com, they allow a mortgage after a foreclosure. There is no waiting period. Good to see lending options coming back.
0 votes
ACS, Renter, 07070
Wed Jul 6, 2011
My current lease is up in a year, so that will give me some more time to increase my credit score, pay off the rest of my credit cards and increase my cash reserves. I appreciate the help and I will be contacting Shane when the time comes around. Hopefully the interest rates do not increase significantly in the coming year. I guess only time will tell..
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Jul 6, 2011
It looks like Shane has got you covered; why don't you consider getting the loan thru him.

I would add; you have 6 months to help yourself:
1.) Bulid up your reserves: Lenders want to see a paper trail for money and some time-in-the-bank for savings. If Uncle Ernie just loaned you $5000 so your reserves would look good; IT WON'T WORK.
2.) You will want your credit lines to be below 50%, (40% would be better), that is, the balance on your credit cards as a percentage of the max credit line on the card. BUT, you do not want to pay them off!!! This is a source of good credit and there will be no reporting if you don't owe them anything.
3.) Don't BUY ANYTHING!! Nothing that you can do without: You certainly do not want to buy anything on credit, but not CASH either, you need that cash in the reserves.
4.) Go ahead and use your cards for normal purchases, like food and supplies; but pay it back at the end of the month.

Good luck and may God bless
0 votes
ACS, Renter, 07070
Wed Jul 6, 2011
Thank you for the information. My foreclosure sold January 2009 so I guess I have a couple more months before I can apply for a FHA loan.
0 votes
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