Credit After Foreclosure – Getting Approved For a Home Loan After a Foereclosure
Home foreclosures spread across the nation with the bursting of the economic bubble in 2008. Trying to get a home loan nowadays is a far cry from pre-2008 conditions. It used to be that the only thing a borrower needs to worry about was whether his future home loan would have a much higher mortgage rate after having his previous home foreclosed. The largest home funding company in the US, the Federal National Mortgage Association, more commonly known as Fannie Mae, responded to the situation by imposing stricter requirements on individuals with a record of foreclosure. As of April 2010, prospective borrowers with a history of foreclosure have to pass three requirements as proof that their credit reputation has been re-established. The first requirement is that they meet the stipulated waiting period for the type of foreclosure they underwent. Second, the borrower must obtain a recommendation from Desktop Underwriter, or meet the minimum credit score requirement for the specific type of loan. Third, the borrower needs to have a traditional credit as delineated in Fannie Mae’s Selling Guide.
These requirements change from time to time, but the trend is to make them more restrictive. For example, the minimum credit score requirement as of April 2008 was 580, but as of December 2009, it was raised to 620. Cited statistics showed that borrowers with credit scores lower than 620 were nine times more likely to display serious delinquency in mortgage payments. Fannie Mae also requires prospective borrowers to have a debt-to-income ratio no higher than 45%. All of these conditions are meant to reduce the risk of future payment defaults among borrowers.
Needless to say, if you have a low credit score and are seriously planning to purchase a home, it is imperative that you work on improving your credit reputation and raising your credit score. You have to conscientiously make timely payments to all of your bills. You need to ensure the accuracy of all information on your credit report. Lastly, you need to honestly assess what you are capable of buying and be able to live within your budget constraints.
