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Mortgage Financing After Foreclosure

Aparna Iyer Jan 9, 2019
This facility provides people an opportunity to avail of a mortgage and stay current on their payments by refinancing to a lower rate of interest.
Mortgage financing after foreclosure is a difficult task since erstwhile homeowners find it incredibly difficult to convince money lenders of their credit worthiness. The difficulty in procuring and refinancing it can be attributed to two factors.
First, the erstwhile homeowner's credit score declines by 350 - 400 points as a result of the proceedings. Second, he finds it difficult to procure both installments and revolving credit.
Since these are necessary for improving credit scores, the consumer faces the seemingly insurmountable task of building credit scores and convincing the lenders of the prudence of allowing mortgage financing in such a case.
Although the recent subprime crisis has made it difficult for people to buy a home after foreclosure, people may still be able to procure mortgage loans meant for bad credit consumers and then refinance to a lower or more favorable rate of interest.
The Federal Housing Administration (FHA) is willing to provide home loans to such people. Since 1980s, the FHA also allows streamline refinancing option for FHA mortgage holders. The term "streamline" refers to refinancing without the usual paperwork hassles.

Obtaining an FHA Insured Loan

It can be used to purchase or refinance a new or an existing one-to-four unit home, a condominium, a manufactured home, or a mobile home. The borrower can opt for one, provided that three years have elapsed from the date of the foreclosure sale.
These loans carry a government guarantee that protects the lender in the event of default. Although the borrower is expected to make a down payment of just 3.5 percent of the purchase price of the property, these mortgages do not require private mortgage insurance (PMI).
A credit score in the range of 580 - 620 is sufficient for availing such a loan. The borrower is expected to pay a premium for the guarantee provided by the government. This premium is paid in two installments.
The first installment is paid at settlement and is equal to 1.75 percent of the loan, while the remaining is paid along with the monthly mortgage payments; till such time, the loan-to-value reaches 78 percent of the initial sales price or appraised value of your home, whichever is less.
People, who do not pay the first installment of the premium at settlement, are forced to pay a higher premium that stays in place throughout the term of the loan.

Refinancing It

People, who have an FHA insured loan, can refinance their home without having to undergo any credit checks, provided that they are current on their mortgage payments and that their annual payment history is satisfactory. Approval is not contingent on the income, the asset, or the borrower's employment history.
Property appraisal is a must if the homeowner desires cash out refinancing. If the consumer just wants to refinance to a lower rate of interest, there is no need for property appraisal. If the homeowner is trying to refinance a loan that was procured in the distant past, it may be possible to obtain a refund on the mortgage premium.
The amount of refund may be applied towards the upfront premium required for the new mortgage. The process of refinancing an FHA loan is streamlined, which is the same as saying that the process does not involve heavy paperwork.
The biggest advantage of availing this loan is that the borrowers may be able to use the anticipated USD 8000 tax credit for availing a short-term loan from a housing finance agency, assuming that they bought their first house 3 years ago. The loan can then be used to fund the down payment required for an FHA insured mortgage.