- Foreclosure filings will decrease a credit score by at least 200-300 points directly after the filing. This could take a person from a 700 credit score down to a 400 in the blink of any eye. While this sounds very bleak, the good news is that credit scores can be rehabilitated over time.
- While foreclosures do have a devastating impact on credit initially, what can be more difficult to overcome will be if the lender that foreclosed filed an additional judgment against the homeowner after foreclosure. This will typically happen if the lender was not able to recoup more than 80 percent of the loss upon reselling the property.
- Positive payment histories can improve credit histories in as little as one year after a foreclosure. Credit scores can easily rebound and be near to complete recovery after a consumer has displayed at least a three-year positive payment history on various trade lines.
- Foreclosures will stay on credit histories for as long as seven years. Judgments can stay on credit histories for as long as 10 years. However, consumers with a foreclosure and no judgment can qualify for a mortgage in as little as three years after the foreclosure was filed. On the other hand, consumers with a foreclosure and a judgment filing will have to pay off the judgment completely before applying for a new mortgage.
- Consumers applying for a loan that is insured by the FHA must prove a positive payment history on all credit trade lines for at least two years. FHA guidelines also stipulate that a consumer must have at least three years pass from the date of foreclosure to the date of originating a new mortgage. Additionally, the consumer must provide an acceptable reason for the foreclosure filing, such as divorce, death, job loss or other loss of income.
- Fannie Mae and Freddie Mac are typically associated with conventional loans. In most cases, these loans require very good credit in order to qualify. However, Fannie Mae and Freddie Mac will underwrite loans for consumers with a foreclosure on their credit report five years after the original foreclosure filing. At this juncture, the consumer must have proven at least two years of positive payment history on all credit trade lines and does not need to provide a reason for the original foreclosure.
- If a consumer was foreclosed on a VA loan in the past, he is not eligible for a VA loan at any time in the future. However, if the foreclosure was an FHA loan or a conventional loan, the VA will underwrite consumers with foreclosures on their credit history providing that they meet the VA loan guidelines. To do so, consumers must have a minimum of two years of positive payment history with all credit trade lines and no recent late payments or collection accounts.
