You Can Get an FHA Loan after Having a Foreclosure

A FHA loan is a loan that is insured by the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development. The loans are financed by private lenders and backed by FHA. Normally, private lenders would be relucant to give you a mortgage loan if you have a foreclosure. But thanks to federal banking, lenders can afford to be more flexible. In order to obtain an FHA loan after foreclosure, you will need to meet certain requirements, but those requirements are much easier to meet than the requirements imposed by private lenders on non-FHA-backed loans.

Federal Housing Authority and Your Mortgage

When a mortgage lender considers whether or not to give you a loan, it wants to be reasonably sure that you will be able to pay it back. Among other things, it will look at your credit history. If the credit history shows a foreclosure, most lenders either won't accept your application at all or it will give you a relatively small loan with high interest rates. Even in the worst-case scenario, an FHA loan will insure the lender they will still get their investment back.

Getting an FHA Loan After Foreclosure

You can qualify for your FHA loan no sooner than three years after the foreclosure process was complete. However, you must also meet a few other requirements, they include:

  • Good credit history - your credit history should be good, especially for the two most recent years.
  • Bankruptcy limit--if you went through bankruptcy, you must wait two years after the bankruptcy proceedings were completed to apply.
  • Tax lien obligations--all of your state tax liens must be paid off in full. If you have unpaid federal tax liens, you will need to show that you have enough income to repay them.
  • Employment requirement--you will need to show that you've been employed for the past two years and will need to show that the income is stable
  • Funds to close-- you will need to show sufficient funds to close your loan.

While those requirements seem steep, they are far more attainable than anything a private lender would allow for non-FHA loans.

How Much Can You Borrow

If you meet the above requirements, you can apply for an FHA loans. Because of federal backing, you can borrow up to 96.5 percent of the value of the house you want to buy. FHA has county-based borrowing limits. Those limits are established by the FHA. If you bought a home in the city and it's surrounding suburbs, the limits would be larger than they are in the more rural sections of the county. But even with those limits, you will still usually be able to borrow more than you would with a non-FHA mortgage.

The limits are adjusted every year to account for each county's population and local housing market conditions. You can find out what the limits are for your county by visiting FHA's official website and clicking on the "resource" tab under the site banner.

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