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Past Foreclosures and New Loans

How exactly will your short sale or foreclosure effect your credit and your ability to purchase a home in the future?  Certainly, with prices and interest rates at all time lows, it would be nice to offset any losses you have experienced by taking advantage of our unique market.

If you have a foreclosure in your credit history, it will be two years before a lender will accept an application from you.  If you want a government backed loan from FHA, there is a three year waiting period.  The VA has a two year waiting period.  Fannie Mae and Freddie Mac have a seven year waiting period, but this can be reduced based on certain situations.  Fannie Mae will allow a three year waiting period if the foreclosure was due to an extenuating circumstance, something which was beyond the control of the homeowner, such as a sudden decrease in income or a huge increase in financial obligations.  FHA may change its time frame if there was a severe illness, divorce or death.

A short sale has less of an effect on one’s credit.  FHA requires a three year wait period if the previous mortgage was not being paid.  They will consider waiving the wait in certain cases, including job loss.  There is no wait if all house payments were made in the previous 12 months.  The size of the down payment can also shorten the down payment.  A 20 percent down payment may shorten the wait period to two years; 10 percent to four  years.

Here are some suggestions for improve your credit while waiting to qualify for a new loan.

Have patience.  Your credit score will improve over time.

Pay your bills on time.

Dispute any errors on your credit report.

Keep your credit accounts.  Old accounts can improve your credit score.

Get a car loan or credit card.  Good account payment history can improve your score.


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