Is 2016 your year to return to homeownership after foreclosure?

Has enough time passed to improve your financial situation enough to become a homeowner again?

As 2016 begins, it’s been eight years since the beginning of the Great Recession and the resulting collapse of the housing market. As the residual effects of the Great Recession decline, consumers who experienced financial distress and defaulted on their mortgages are now recovering financially. It may be time to think about becoming a homeowner once again. Here are steps for you to consider before taking the plunge back to being a homeowner and the criteria that lenders will use to evaluate your creditworthiness.

Rebuilding your financial house takes time, patience, and discipline but the effort brings promising results. Here are some tips to evaluating your current money situation:

  1. Evaluate your current credit score. Different lenders have various minimum score requirements to qualify for a mortgage. Knowing your credit score lets you know where you stand.
  2. Assess your financial situation. Has your employment become stable since the Recession? Are your bills being paid on time, all the time or is it still a struggle each month? Take our online survey to get started. What is an affordable housing payment?
  3. What is the balance of your savings account? Are there enough funds to make a down payment and cover closing costs? What can be changed to increase savings?
  4. Be honest with yourself – did the foreclosure occur due to circumstances beyond your control, such as a job loss, unexpected medical expenses or a divorce? If so, the waiting time to return to homeownership may be reduced by the lender.

Next, it’s time to compare lender qualifying requirements to see what the benchmarks are for returning homebuyers. Keep in mind that there are exceptions to these guidelines, based on individual borrowers’ circumstances regarding the previous foreclosure. In addition, there are separate guidelines if the prior home was lost via short sale or deed-in-lieu of foreclosure. The chart below outlines the criteria that lenders use for borrowers returning to homeownership after experiencing a foreclosure.

Type of loan

Minimum credit score

Waiting period 

Waiting period with extenuating circumstances

FHA       

620

3 years

 

 

Fannie Mae

680        

(foreclosure) 7 years

(short sale) 4 years

3 years

2 years

 

Freddie Mac

660        

(foreclosure) 7 years

(short sale) 4 years

3 years

2 years

 

VA         

N/A

2 years 

 

MSHDA

640        

3 years

 

2 years

 

As we move further away from the recession, lenders are becoming more willing to grant a second chance to borrowers who experienced foreclosure providing that their credit is repaired and the financial situation has stabilized. And, that enough time has passed before a potential homeowner is determined to be credit worthy again. Over a million former homeowners may be able to qualify to purchase a home in 2016. Will you be one of them?

Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, go to either the events page or the MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health. 

Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health website.

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