FHA Foreclosure Waiting Period: A Guide

When borrowers fail to make mortgage payments, they may undergo foreclosure on their home. After such a stressful time, you may wonder, "Can I get an FHA loan after a foreclosure?"

The answer is yes – borrowers can get an FHA loan after a foreclosure.

However, you'll face a waiting period, also known as the FHA foreclosure waiting period. Let’s walk through what the foreclosure waiting period is, how you can help yourself after experiencing this unfortunate situation and why you shouldn't concede defeat if you do face foreclosure or bankruptcy. 

What Is The FHA Waiting Period After A Foreclosure?

What exactly is foreclosure, and can you get an FHA loan after foreclosure? During foreclosure, a lender repossesses and attempts to sell a house – the home is the collateral for a mortgage loan.

A Federal Housing Administration (FHA) loan is a type of mortgage loan backed by the FHA, a part of the U.S. Department of Housing and Urban Development (HUD). The government protects your lender's investment against default, making qualifying easier. Generally, you will need a minimum 580 credit score and can put down a lower down payment – as low as 3.5%.

A prospective home buyer who has experienced a foreclosure must wait for at least 3 years before becoming eligible for a new FHA loan.

FHA Waiting Periods Based On Foreclosure Circumstances

The FHA loan foreclosure waiting period includes additional waiting periods for getting an FHA loan after a bankruptcy  and additional extenuating circumstances surrounding the initial foreclosure. The following waiting period timelines are applicable to those borrowers who kept their home. 

In a foreclosure with extenuating circumstances, extenuating circumstances refer to nonrecurring events beyond your control that result in a reduction in income or an increase in financial obligations, such as the death of a wage earner or a serious illness.

• Chapter 7 bankruptcy: Chapter 7 bankruptcy clears away debt. It is a liquidation bankruptcy because you sell nonexempt possessions or assets to pay your creditors back.
• Chapter 13 bankruptcy: Chapter 13 bankruptcy involves reorganizing your debt repayment under court supervision, with a plan to repay creditors within 3 – 5 years.

Getting A New FHA Loan After A Previous Foreclosure

What steps can you take to get an FHA loan following foreclosure? You can do a few things to get an FHA loan following foreclosure, including establishing your credit, preparing your down payment, waiting the required amount of time and showing proof of income.

Establish Your Credit

Reestablishing credit after a foreclosure is important when applying for a new FHA loan. Your credit score is a three-digit number (ranging from 300 – 850) that shows your credit history and also indicates how well you'll repay debt. Consider these finance and credit tips for establishing or rebuilding your credit:

• Make payments on time: Making payments on time means that every time you receive a bill, you pay it on time, whether it's your rent payment or a medical bill.
• Reduce debt: What debt can you pay off or eliminate to improve your credit situation? Can you pay off a car loan to get it off your back? Can you pay off a personal loan you borrowed from your lender? A credit card? Reduce debt however you can to boost your credit score.
• Check your credit report: Your credit report shows your personal information and credit history, including a record of your credit accounts and your payment history on those credit accounts. Checking your credit report can help you find mistakes in your credit reports – you might find misattributed creditor charges, incorrect debt amounts, negative or derogatory remarks such as old accounts that went to collections, etc. These might be incorrect.
• Keep credit utilization low: This means that of your available credit, you use a small amount of it. For example, if you have a credit card limit of $10,000, you'd use far less than that amount.
• Don't apply for new credit: Skip applying for new credit altogether. For example, if you're contemplating applying for a new credit card, don't. It can help your credit to stop applying for more credit.

Prepare A Down Payment

FHA loan down payments are the amount you put down as a percentage of your borrowed amount. They require you to put down 10% if your credit score is between 500 and 579. You can put down 3.5% with a credit score of 580 or above.

Let's say you have a 510 credit score. You can buy a $300,000 home with a minimum down payment of $30,000 with an FHA loan. On the other hand, with a 580 credit score, you can put down $10,500.

Check with your lender to determine the down payment you need to get an FHA loan after foreclosure, Chapter 13 or Chapter 7 bankruptcy, or foreclosure with extenuating circumstances.

Wait The Required Amount Of Time

You’ll need to wait the required 3 years before you can access a loan again under most circumstances. If you have a foreclosure with extenuating circumstances, you may not have to wait as long.

Your lender can give you more detailed information about how long you must wait and the requirements you need to meet to qualify sooner.

Show Proof Of Income

Your lender will want you to show proof of income to qualify for a new FHA loan, so continue working or generating income while you're in the foreclosure waiting period and after. Your lender may ask you for income identification like W-2 forms, pay stubs, bank statements, tax returns and other documents.

Lenders will also check your debt-to-income ratio (DTI) – the percentage of your monthly gross income that goes toward paying debts. It's your total monthly debt payments divided by your monthly gross income, expressed as a percentage.

Your DTI should not exceed 43% of your monthly gross income. The lower your DTI, the better off you'll be.

The Bottom Line

Can you get an FHA loan after a foreclosure? The answer is a simple "Yes!"

In short, foreclosure doesn't mean you can never purchase a home again with an FHA loan. Getting an FHA loan after foreclosure is possible.

However, your lender will want you to undergo a waiting period. A foreclosure will typically require a 3-year waiting period, while the waiting period for a foreclosure with extenuating circumstances could be less.

Ready to find your next home? Apply for a mortgage loan today.