How soon after a foreclosure may one obtain a new mortgage? FIVE YEARS- at least.

There has been much ado on the news lately of people walking away from homes they cannot afford and simply saying well F- it. That is a personal choice concerning both financial and moral decisions many homeowners are now facing. Whether a person feels they are entitled to walk away from a mortgage simply because their house is now worth much less than they owe or because they want to prioritize other bills- well I am not sure I agree. Having severe financial hardship because of job loss, depletion of all assets and no chance in selling the house- well I am not sure. Saying F- it because the bank won’t allow you to sell at a great loss to them-well if you can still make the payment…..

But this isn’t about me and who cares what I think!

Regardless of your reason to allow the bank to foreclosure, know this- it will be really hard for you to get another mortgage anytime soon regardless of what you hear on 60 Minutes or read on the internet news.

Simply because FNMA said they will allow you to get a mortgage two years after a foreclosure does not mean that the lenders are willing to take that risk. FNMA still sets the qualifying guidelines that most large and small lenders abide by. However, lenders have what is called overlaying guidelines, which are their own set of rules layered over what FNMA says they will allow. So, it might not be so easy. Below, I have listed a few pointers on getting a new mortgage after a foreclosure.

• FNMA states that they will consider a borrower two years after a deed in lieu of foreclosure- this is when you give the deed over to the bank without a foreclosure action.
• FNMA will expand this to short sales- if they allow you to sell the house for less than you owe and take a hit (which does not mean that you are off the hook with the IRS for the deficiency)
• If you do complete the foreclosure by discharge or dismissal- there will be a minimum of five years to get another mortgage
• If the foreclosure is less than seven years old, the new loan will be limited to primary residences and rate and term refinances
• The minimum FICO score is 680 and might go higher
• The down payment will be at least 10% and that also means PMI must approve the loan
• Credit must be reestablished and be perfect
• A 24 month housing expense must be shown to be timely and documented (you can’t live at your parents for free and must show copies of canceled rent checks)
• There may be no new collection accounts or judgments after the foreclosure

 This is pretty much what FNMA is saying, although the rules can change at the drop of a hat. In addition the lenders can ask for anything they want over and above Fannie. So, before you walk away- think about the ramification to your future and if it is really feasible to say F-it!