If you have had a foreclosure on any property within the past seven years, your home loan options are limited. Conventional mortgage loans underwritten to the guidelines of both Fannie Mae and Freddie Mac will require a minimum of seven years from the foreclosure of a property to purchase or refinance a new property.
The government sponsored agencies Fannie Mae and Freddie Mac do not participate in any loan classified as a “jumbo loan”, but the majority of mortgage banks offering Jumbo home loans apply the same waiting period of conventional loans to the Jumbo loan requirements and will require seven years from a foreclosure to purchase a refinance.
Mortgage Programs with Less than a Seven-Year waiting period from a Foreclosure
FHA Purchase or Refinance after a Foreclosure
FHA home loan guidelines will allow for the purchase or refinance of an owner-occupied home, three years from a foreclosure. The negative factors of FHA loans are the additional expenses of both up-front and monthly mortgage insurance for the life of the loan, and the maximum loan limit restrictions set forth by the specific county loan limit where the transaction is occurring.
VA Purchase or Refinance after a Foreclosure
VA home loans guidelines have the most lenient policy when it comes to a purchase or refinance from a foreclosure. The minimum waiting period from a foreclosure is twenty-four months. For any eligible Veteran who has experienced a foreclosure, VA home loan financing can be their very best home loan options.
USDA Purchase or Refinance after a Foreclosure
USDA home loan guidelines will allow for the purchase or refinance of home thirty-six months from a foreclosure. USDA home loans carry a form of monthly mortgage insurance similar to FHA only significantly less than FHA.
Portfolio Loan Programs Purchase or Refinance after a Foreclosure
A portfolio loan is a mortgage loan offered by a lender that does not follow the guidelines set forth by Fannie Mae, Freddie Mac, FHA, VA, or USDA. These programs do not have the same foreclosure seasoning requirements as other loan programs. There are portfolio loan programs that allow someone to secure a new home loan in as little as one day after a foreclosure.
Where can you find a Portfolio Lender?
Federal banking laws allow mortgage banks to sell or transfer the servicing rights of mortgages to other financial institutions. Consumer consent is not required when a mortgage company transfers or sells a mortgage. The actual business of mortgage lending is based on a process of mortgage banks creating mortgage loans that will meet the requirements of the servicing companies who will buy the loans and then utilizing lines of credit to fund these home loans. Profit for the mortgage bank is generated on the transactional fees paid by the borrower, but the goal of the transaction is the sale of the loan to the servicing companies, which will refund the line of credit used to fund the loan allowing the mortgage bank to make more loans and create profit paid by the servicer who is buying not only the loan, but the future interest paid on the loan.
Government sponsored institutions like Fannie Mae, Freddie Mac, and HUD are tasked with the establishment of minimum guidelines for individual home loans to participate in this process of transferring or selling home loans. In many situations Fannie Mae and Freddie Mac will actually purchase these loans from the banks that make them, then will bundle groups of these loans and sell them to insurance companies, pension funds and investment banks with a guarantee of interest return to the buyer. Home loans that are eligible for participation in the secondary market are generally assumed to have a lower amount of risk based on the individual qualification of the borrower. A mortgage loan inside the specific loan program foreclosure seasoning requirements will exclude that transaction from secondary market participation.
A portfolio loan is not eligible for sale to these government sponsored agencies and is created with the intention of the bank that makes the loan to service the loan for the life of the loan. Mortgage banks that offer portfolio loans are typically smaller banks or Credit Unions that depend on individual mortgage brokers to identify the mortgage transactions that they fund and service. A person looking for a portfolio loan program that will provide financing after a recent foreclosure will need to identify a mortgage broker or a mortgage banker (with the ability to broker loan transactions) with experience and relationships to provide these types of loans.
Anticipated Terms of a Portfolio Loan after a Foreclosure
Borrowers looking to secure a portfolio home loan that will allow for purchase or refinance after a recent foreclosure can be prepared for the following terms:
Ownership Classification for Portfolio Loans for Borrowers with Recent Foreclosure- Portfolio loan programs for transactions after a recent foreclosure are typically limited to owner-occupied or second home transactions. There are very few portfolio lenders that will provide financing on an investment property after a recent foreclosure.
Minimum Down Payment for Portfolio Loans for Borrowers with Recent Foreclosure- A portfolio loan program that will lend to someone with a recent foreclosure will have a minimum down-payment requirement of twenty percent.
Loan Terms for Portfolio Loans for Borrowers with Recent Foreclosure – The majority of portfolio lenders that are providing home loan options to borrowers with a recent foreclosure are providing adjustable rate mortgages rather that thirty-year fixed loan programs. From the portfolio lenders perspective, they are taking a risk in funding loans that are not easily transferable and as a result, they would like the portfolio loans that they create with a recent foreclosure to refinance, or pay off the loan within a period of time less than thirty years. This is encouraged by offering loan terms that are not fixed for a period of thirty years.
Interest-Rates for Portfolio Loans for Borrowers with Recent Foreclosure- Portfolio lenders providing loans to borrower, with recent foreclosures are providing loans with interest rates that are reflective of the risk associated with the programs. While the loans typically do not carry any pre-payment penalties or points, the interest rates on loan programs with a recent foreclosure are anywhere between one to two percent higher than a traditional (non-portfolio) loan program. Borrowers who are able to put down twenty-five percent or more will encounter significantly lower interest rates than someone who looking for the minimum down payment of twenty percent.
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