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How to Refinance with a Foreclosure on Your Credit Report
Whether you can refinance with a foreclosure on your credit report depends upon two factors: your loan terms and your mortgage lender.
Negative credit events like foreclosure affect every credit decision made by lenders. A foreclosure will stay on your credit report for seven years. But many creditors look past previous foreclosures during the refinance application process.
Your loan terms
Sometimes mortgage companies require a waiting period between the foreclosure and refinance. This is known as a “seasoning period.” How long this period lasts depends upon a particular creditor’s internal controls and your specific type of loan.
Your loan terms dictate whether refinancing even makes sense for you. Three primary reasons lead homeowners to refinance. First, you could refinance to lower your interest rate and pay a lower monthly payment. Second, you could refinance to an even lower interest rate with a shorter loan term to finish paying off your mortgage sooner. And third, you can refinance your mortgage to include unsecured debt. The second option requires higher income, and the third option requires sufficient equity.
Most people refinance to lower their monthly payments. Your current loan terms will determine whether your should refinance. If you can lower your monthly payment without inhibitive refinance costs, then you could save money in the long-term.
Your mortgage lender
Fannie Mae and Freddie Mac require conventional mortgage refinance seasoning periods of seven years in some cases. But in many cases, Fannie and Freddie allow refinancing after as few as two years. Your credit profile both prior to and following the foreclosure, as well as your home equity, determine how long you must wait to refinance.
If you want to obtain an FHA refinance, you must wait two years post-foreclosure.
Likewise, Veterans Affairs loans (VA loans) also generally require just two years following a foreclosure to refinance. With VA loans, be sure to ensure with your lender that your certificate of entitlement passes muster to refinance.
Most lenders have policies and protocols, but also allow for exceptions. If you have your heart set on a particular lender, find out what exceptions they may allow for.
How to refinance with a foreclosure on your credit report
Check with Quicken first. If you qualify with Quicken, then you may qualify with other lenders. If you do not qualify with Quicken, you may have to seek out local offices and make a pitch in person. Quicken currently offers great rates.
As time passes, your foreclosure will have less and less effect on your credit. If you want to refinance with a foreclosure on your credit report, don’t let fear or rejection hold you back. If the numbers make sense for you, give it a shot. The worst a lender can say is No, and there are other lenders.
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