Born Again: When will you be eligible for a mortgage after a foreclosure or short sale?

by Alex Stenback on October 24, 2008

Did you miss the fact that foreclosure filings were up 71% in the third quarter?

Which makes it a good time to remind everyone of the rules that govern when and how you'll be eligible for a mortgage after you've been foreclosed, surrendered a deed, or negotiated a short sale.

For borrowers with a foreclosure, short sale, or deed in lieu of foreclosure on their credit history, the following timelines apply before they'll be eligible for a conforming, conventional mortgage (Fannie Mae/Freddie Mac):

  • Foreclosure: 5 years from completion date, minimum 680 FICO and 10% down for 7 years, investment property, second homes, cash out refinances not allowed for 7 years.

  • Deed-in-Lieu of Foreclosure: 4 years, at least 10% down required for 7 years.

  • Short Sale: 2 years.  4 years for Freddie Mac

For what it's worth, under FHA rules you have to wait two years before you are born-again.

Goes without saying that if you do wind up with a foreclosure (or one of it's close cousins) on your record, unless you handle the period after the foreclosure properly by re-establishing credit – no easy trick with a serious derogatory on your record - and accumulating a sizeable down payment, you are likely to be renting for a long, long time.

Or, another way to look at this: At some point in the next five years, buying may look really cheap, and you'll be locked out of the game.

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