Hope for a New Home After Foreclosure and Bankruptcy

For many people, filing bankruptcy or losing a home to foreclosure or a short sale can feel like the end of being a homeowner. The good news is that these actions are not the last opportunity for homeownership. With hard work and the right loan program, you can still purchase a home.

First, we look at three different types of underwriting for home loans. These include Federal Housing Administration (FHA), Fannie Mae and Freddie Mac and Veteran Adminis­tration (VA) backed home loans.

The FHA provides a loan guarantee program in lieu of pri­vate mortgage insurance so qualified borrowers can get a mortgage loan with a low down payment. The FHA doesn't lend you the money. They guarantee your loan, so the lend­er doesn't take on a financial risk by extending you credit. The VA works in a similar manner for military members and veterans.

Many conventional mortgages are backed by Fannie Mae and Freddie Mac. These mortgage loan guarantors typically require a larger down payment than would be necessary for an FHA or VA backed mortgage.

For a FHA loan, the waiting period after a bankruptcy is two years. After a foreclosure or deed-in-lieu of foreclosure, it is three years.

A mortgage backed by Fannie Mae or Freddie Mac may have a seven year waiting period if you have had a fore­closure or deed-in-lieu of foreclosure. However, there are exceptions to that timeline. Buying a home post bankruptcy using Fannie Mae or Freddie Mac has a waiting period of two-to-four years. 

Published Apr 28, 2014.