October 14, 2014 by Leave a comment

Losing your home to foreclosure can have a devastating impact on your credit score. But here’s the good news: it doesn’t mean that you won’t be able to buy a home again. If you work to steadily rebuild your credit, you could become a homeowner again. And in some cases, you can accomplish this in as few as two years.

The damage that a foreclosure does to a credit score varies depending on a host of factors. But most consumers can expect foreclosures to drop their three-digit scores by 200 points or more. A foreclosure will remain on your credit score for seven years. And lenders will see this black mark whenever you apply for credit during this period.

If you want a traditional mortgage loan backed by Fannie Mae or Freddie Mac, you’ll need to wait seven years after your foreclosure to apply for one. However, there are certain government-backed mortgage loans that come with far shorter waits.

If you qualify for a loan backed by the U.S. Department of Veterans Affairs, better known as a VA loan, you’ll only have to wait two years after a foreclosure. For a loan insured by the Federal Housing Administration – better known as an FHA loan – you might only have to wait one year after a foreclosure. That’s if you can prove that an economic event outside your control led to your foreclosure. If you can’t prove this, you’ll have to wait three years after your foreclosure to apply for an FHA loan.

Of course, you’ll have to improve your credit score if you want to apply for a mortgage loan after a foreclosure. The best way to do this is to pay all your bills on time each month and to eliminate as much credit-card debt as possible. Know, too, that the negative impact of your foreclosure lessens as the years pass. Your foreclosure will exert a bigger drag on your credit score immediately following your foreclosure than it will five years later.

Foreclosures are never easy. The good news? They don’t have to mean the end of your owning years.


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