Buying Another Home After Foreclosure

by Becky from Flint, Michigan, USA

Ask Kate about buying another home after foreclosure: Kate, We lost out home due to the sub-prime loan practice, and are considering another home. I'm sure my credit is below poor. Before we lost the home, we paid $15,000 to catch up the mortgage, thinking we were okay. We were then current. Ninety days later they sent a notice to vacate the property. I'm not sure if that is even legal, but we did. Now I've found a nice home I'm interested in and have a 20 percent down payment.



Becky continues... Will I still be able to finance, or do I need to look at maybe a land contract. The price of the home is $21,000. I don't know if it matters on the cost of the home and the deposit, or not. Any help you could offer would be appreciated. Thank you for your time.

Kate Answers: Buying Another Home after Foreclosure

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Becky,

You might be surprised to know how often I've heard mortgage borrowers say with surprise, "I can't believe the lender is giving me a difficult time. I only am asking to borrow a little money."

But in truth, a small loan amount or minimal purchase price does not equal less stringent underwriting guidelines.

As a side note though, large loans amounts in the Jumbo category come with more hoops to jump through. So this is one of those areas that doesn't make a lot of sense, at least on the surface.

Getting back to your question, the answer is yes, you will still need to meet all underwriting criteria for a home buyer who recently had a foreclosure, regardless of applying for a mortgage loan amount under $20,000.

Buying a Home - Downpayment - Loan-to-Value

Moving onto your second question - Is the percentage of down payment important after foreclosure?

Y-E-S. Very important. The downpayment compared to the purchase price is a crucial factor for any home buyer, especially a home buyer with a relatively recent history of foreclosure.

If you apply for a mortgage, you may hear the lender talking about loan-to-value. With your 20 percent down payment, your loan-to-value will be 80 percent. That's a great loan-to-value, one that causes a lender to be more willing to grant loan approval.

FHA Home Loans

However, as you mentioned, you do have poor credit. Weak credit makes it harder to obtain any type of mortgage program. So I suggest starting with FHA home loan programs. FHA, the Federal Housing Administration, insures mortgages for participating lenders. Home buyers with less than perfect credit find FHA mortgage loans are affordable and reliable as opposed to your sub-prime loan experience.

Much of the time, FHA home loans are approved at approximately 97 percent loan-to-value, or another way of saying the same thing, 3 percent down. But with your 20 percent downpayment, you may discover more leniency toward a past foreclosure.

Learn more about FHA loans here. And one more thing. If you do not get your loan approval, ask what you can be doing to prepare for a mortgage next year. Go here for ways you can start working on your credit scores now.

Ask Kate and Comment

Becky, is this page is helpful to you? I'd like to hear back from you. You (or anyone else reading this) can comment on Buying Another Home After Foreclosure. (Find the commenting link at the bottom of this page.) Or Ask Kate another question.

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Best wishes,

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Owner Financing following Mortgage Foreclosure
by: Earl in Virginia

Hello, I was in a mortgage that was in review under the Hamp Program. After a three year roller coaster ride, my father in-law purchased a home for my family and I. At this point we started to prepare ourselves to lose or walk away from our previous property. After many trial payments and threats of foreclosure, we walked away and let the property go.

We are at the point now in which we would like to purchase our current property from my father in-law. The problem is that our credit has not rebounded enough to obtain a new mortgage. My father in-law is not pressuring us at all, but I would like to take ownership of this property for ethical reasons and the obvious tax benefit.

My father in-law would be open to a short term owner financed purchase of this property. Is this possible if he still has a loan on this property? Would we do a Seller Financed purchase or should we do a Owner Financed purchase? My plan is to do a short term loan with a final balloon for the remainder in 5 years. Can someone give me some advice on this? Many Thanks!

Hi Earl, Kate here.

Originating owner financing on a home that already has institutional mortgage financing could be problematic. A common issue is that many home loans today have due-on-sale clauses. More about a due-on-sale clause is found here.

I hope your father-in-law will carefully review the terms in his loan documents and consult an attorney before going further.

Best wishes, Kate

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