Feb

Using a USDA Loan to Purchase a Home After a Foreclosure

: flickr photo by Respres

A lot of homeowners think that after a foreclosure they will never be able to purchase a home again. A foreclosure does hurt your credit in the short term, but it will not keep you from purchasing a home in the future.

The actual foreclosure event will stay on your credit report for seven (7) years.

So, your house was foreclosed on you’ve moved out now what.

You’ll need to start re-building your credit. One thing you’ll need to make sure is keep track of all paper work from the previous mortgage company. Be sure and get a free copy of your credit report from annualcreditreport.com Check your credit report for errors, if there are errors send supporting documentation to the 3 credit bureaus asking that the error be corrected. By law they have 30 days to investigate or they have to remove the item; however, if it is later found that it is accurate, it will be replaced on your credit. The Federal Reserve Board has a flyer to help you entitled, “5 Tips for Improving Your Credit Score.”

Document the circumstances surrounding your foreclosure. What happened that caused the foreclosure to start, loss of job, medical problems, death of spouse, significant other, etc. The underwriter will want to know that the problem is not likely to recur and that you are in a much better ability to pay a mortgage in the future.

You will need 3 years from the date of your foreclosure until you are able to purchase a house using a usda loan, which allow for 100% mortgage financing. In addition to the 3 year time frame you will also in most cases need at least a 620 credit score.

One thing that will help speed the process if you work with your lender prior to the foreclosure through:

Forbearance. This is an agreement that lets borrowers make a reduced payment, or none, for a specific period. You might have to make larger payments once the crisis has passed. To qualify, you might need to show that you’re expecting a bonus, a tax refund or other income that will let you catch up.
Reinstatement. You agree to pay the full amount of your missed payments by a specific date. Reinstatement is sometimes combined with forbearance.
Modification. Your lender agrees to change the terms of the loan to make payments more affordable. Your lender may agree to add missed payments to your loan balance or extend the term of your loan, reducing the size of your payments.

If you are beyond that point or there is just no way you can afford the current mortgage then it is time to move on:

Work with your lender and ask if they will accept a deed in lieu of foreclosure. This is where you sign the house over to the lender then they do not have to go through the foreclosure process. You will have to move out immediately. The bright spot for you is that you can begin the rebuilding of your credit sooner than if you waited on a foreclosure.
Sell your home. More than likely you owe more than your home is worth. So, you will need to sell as a “short sale”. You’ll want to contact a short sell investor or a Certified Distressed Home Seller Real Estate Agent. While you may try selling yourself, this will not get you the exposure your home needs to sell quickly.

For a free copy of our Consumer Credit Scoring Booklet, contact Jeremiah Wean.