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A foreclosure can be a devastating blow to your credit, but it doesn’t mean you’ll never be able to buy a home again. With the right steps, you can build your credit score and apply for credit, loans and even a mortgage. Learn how a foreclosure affects your credit score and what you can do right now to start repairing your credit.
A foreclosure can lower your credit score by as much as 160 points. If you already have blemishes on your credit report, such as repossessions, tax liens or bankruptcy, a foreclosure could affect your credit more significantly than if your credit score was in good condition. In either case, you likely won’t be able to apply for a mortgage loan for three to seven years after a foreclosure, depending on your circumstances.
All hope isn’t lost after foreclosure, though. Use this time to take a closer look at your finances so you can work on repairing your credit and planning for the future. Follow these steps to repair your credit after foreclosure.
It depends on your individual circumstances and the type of loan you’re applying for. For conventional mortgages backed by Fannie Mae and Freddie Mac, you’ll have to wait a minimum of three years if an extenuating circumstance — like a job loss, divorce, medical emergency or other major life event — caused you to miss mortgage payments. Otherwise, you’ll have to wait seven years before being eligible for this type of loan again.
You could get an FHA loan as soon as one year after foreclosure if you can prove that an extenuating circumstance was the cause. VA loans typically require that you wait two years after foreclosure to apply for another mortgage. If you’re borrowing from a credit union that offers mortgage loans, you may have more flexibility when applying for another mortgage after foreclosure.
Nobody goes into buying a home expecting a foreclosure to happen, but the reality is that many people will experience one. If you’re going through the process, know that this blemish on your credit report won’t stay with you forever. It’s possible to buy another house down the road if you take the necessary steps now to rebuild your credit and shore up a realistic budget and debt management plan.
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