Looking for a new morgage on a new house, 6 months after foreclosure.Credit score is there, help! Who can?

Question

We are looking for a lender who will work with us. It has been six months since foreclosure on our old house. We have no debt and more income and would like to buy a new house. The credit score is there. We are looking for 0% down. Let me know who will lend to us.

Answer 1

I would be amazed if you can make this happen.

First off lenders work on the basis that once a bad customer, always a bad customer. One of the very worst things you can do is foreclose on a home. This is a massive red flag for lenders.

Then you say that you have no debt. Well that's not really a good thing either. Lenders want to see how you have handled debt in the past. All they can see is that you have no debt, and six months ago you foreclosed on a home.

You don't say what your credit score is, but I'd be surprised it is above 600 if you had a recent foreclosure. I can't imagine a lender offering 100% financing to someone with that profile.

Finally, you have to understand that when you purchase a home a lender is looking for some protection. If you foreclose on a home they will typically sell the home off at 80% of its market value for a quick sale. So if they lend you 100% and you stiff them, like you did your last lender, they are out 20% of the value of your home. So given what an incredibly high risk you are, I can't imagine any lender even touching that deal unless you bring at least 25% to the table, and can prove that you are not the same people that foreclosed a few months ago. The only way you are really going to prove that is with time and good credit.

Frankly if you buy a home with 100% financing in the next five years I would be amazed, even then I expect your interest rate will be outrageous.

Answer 2

You probably can find either a seller to carry the note or a lender that will charge you much greater than standard rates for what will be a very high risk loan.

So now let's talk common sense here, putting zero down on a home is ALWAYS high risk, even in markets that appreciate quickly. Why is it such a bad idea? Because you pay more for your loan (higher interest rates), have to pay for PMI AND you don't have any equity to act as a cushion should ANYTHING happen that can affect your finances.

Without some equity, if you need to sell and the market has dropped or not grown much, you can't get out. But then it sounds like you already know all this, because if you hadn't over extended yourselves and had an economic "hiccup" you would not have had to lose your last home.

The definition of insanity is repeating the same behavior over and over again and expecting different results.

So...do you really want to do something this insane?

It is time for you two to make some SOUND economic choices. You start by putting aside savings for emergencies - at least 3 months CASH (in CDs or money market accounts) to cover things that crop up. This could be a broken vehicle, a medical emergency or even a loss of job. If you have kids, you should have more, optimally 6 months income places in liquid and safe investments.

When you buy a home again, that emergency fund also covers things that happen to houses, like roof leaks or broken water heaters.

THEN....put together at least a 5% plus closing costs down payment. More is better as it will result in better loan rates and if you could actually pull together 20%, no PMI.

If you don't do it the smart way, you will pay 10s of thousands of more for your home in the long run and that WILL slow the path to equity build up in your home and your overall path to financial security and wealth.

So for now, scale your expenses as low as you can tolerate. Put off all major purchases; no new cars, shop as little as possible and make it a family challenge to see how much and how fast you can put together what you need for emergency cash and a down payment.

You should also be funding your retirement plans at work to the MAX. If you wait to start on retirement savings, you WILL almost certainly come up short.

The good news is that in most areas the housing bubble is leaking and prices are dropping. In the few areas that are still rising, speculation is driving it and that's usually a sign that that market will burst soon too. Thus there is not only no reason to rush into a home purchase but it may actually be a poor time to buy. Why pay more than you have to?

In other words, I appreciate and understand your dream and desire for the stability of home ownership; the problem is that in your current situation, what you are proposing is not stable.

I fully expect you'll ignore me, but if you truly want to get to a good place financially, you should pay attention and do this right.

Answer 3

You are looking for love in all the wrong places.

It took almost 3-4 months of not paying your mortgage on your old home for foreclosure proceedings to begin!

So now, you have been living "clean" for 6 months -- not even a year -- and you want ANOTHER house just because your credit score "is there?"

You need to rent a house for at least 24 months to prove your ability to hold this obligation down and THEN look for a new home after showing yourself that you are displined for a straight 24 months.

You are trying to do waaaaaayy too much too fast.

Please step away from the mortgage broker and get some fresh air.

Answer 4

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