A recent Yahoo! Finance article answers the question posed by this blog’s title in its own title: “You Can Buy a Home After Foreclosure.”
While that headline is straightforward and to the point, it’s not quite that simple. As the article goes on to explain, there is a mandatory waiting period of three years before you can attempt to buy a home after the completion of a foreclosure. This rule is imposed by the Federal Housing Commission, so it’s strictly enforced and unavoidable. The only way to bypass the three-year rule is by applying for a loan through the V.A., which is limited, of course, to our country’s veterans.
As I’ve written before, a foreclosure will stay on your credit report for seven years. It’s not a coincidence, then, that the Yahoo! article mentions that it is difficult to receive a home loan from Freddie Mac or Frannie Mae before this seven year window is up. With an unblemished post-foreclosure credit history, however, it is possible to buy again as soon as three or four years after your foreclosure. If this is the case, then the question shifts from “Can I buy a house after foreclosure?” to “Should I buy a house after foreclosure?”
If you’ve been able to restore your credit score and straighten out your financial life in the aftermath of a foreclosure, then deciding whether or not to buy a house should be the same for you as it for someone who hasn’t gone through a foreclosure. Having said that, it is also important to recognize the behaviors, actions, and decisions that contributed to your foreclosure, and what you need to do differently this time around to avoid the same fate. Here are some key questions to ask yourself before buying a house:
1. How much can I put toward a down payment?
Hopefully you’ve been able to save some money since your foreclosure, as a sizable down payment and comfortable nest egg are important for any house buyer. Making a large down payment (greater than 10%) could help convince a mortgage company to give you a loan sooner, and it also reduces the total amount you will pay for your home in principal and interest in the long run.
2. How long do I plan to live in this home?
The Yahoo! article notes that to “break even” on a home loan, you need to live in a house for at least four or five years so that the increased value of the home will cover the additional costs of purchasing and then selling the house. To be safe, you should plan to live there at least 6-10 years to make sure that you aren’t getting a negative return on your investment.
3. Are your living and working situations stable?
Having gone through a foreclosure, you know that missing mortgage payments can quickly mean losing your home. If you think you’re at risk of losing your job and being unemployed for even a couple months, then it’s probably not the right time to buy a house. You should also consider your home life. Are you married? Facing a divorce? Expecting a child? If you can foresee any major life changes, you need to factor those into your home buying decision.