How to Buy a Home with a Foreclosure on Your Credit Report

Having a foreclosure sale or auction on your credit report can make it difficult to get approved for a mortgage, particularly if you are financially able to buy another home. However, it is not impossible, and lending programs exist to help home buyers attain financing.

Step 1

Apply with a federal lender such as Freddie Mac or Fannie Mae. Unlike many banks, federal programs offer those who experienced past foreclosures an opportunity to become a homeowner again. Federal lenders such as Fannie Mae may require that you wait at least one year or possibly as long as five years between a foreclosure and applying for a new federal home loan. Although this does mean renting for those years, you will have the time to rebuild your credit and start over. Freddie Mac's Home Possible loans are offered at a fixed rate and are available to those who have had a past foreclosure. Home buyers must first complete an education class in buying a home before financing can be approved from this lender. Fannie Mae works directly with lenders to ensure that financing is available for those with poorer credit scores and lower incomes. In order to take advantage of this assistance, you will need to work with a Fannie Mae-approved lender.

Step 2

Apply for an FHA loan. The Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development, is the top government mortgage insurer. It offers home loans that are designed for people with either low incomes or past debt problems. An FHA loan is typically low-interest and requires only a very small down payment and mortgage insurance. Once again, it is best to wait at least a year before applying for this program to improve your credit history.

Step 3

Apply for a USDA loan. The U.S. Department of Agriculture has a rural housing program that will cover 100 percent of the loan for home buyers interested in rural housing or in some cases, small town living. They supply 100 percent of the purchase price and assist with closing costs. Low credit scores are accepted, and past foreclosures are typically not an issue with this type of government-secured loan.

Step 4

Apply for a VA loan. If you are a veteran, you may be eligible for the U.S. Department of Veterans Affairs Loan Guaranty program. This program offers a guaranty to a bank to provide you with financing for a home. The limits for this program are calculated by your current county of residence and range from more than $300,000 to nearly $700,000.

Step 5

Find a seller willing to offer financing. Check ads in the real estate section of local newspapers, posted on real estate websites or listings with local real estate investment associations and clubs. Often, the easiest way to buy a home after a foreclosure is to work directly with sellers. Typically, they will require a down payment that is at least 10 percent of the purchase price, as well as a contract to protect their interests. Seller financing does not rely on credit scores, and it gives home buyers an opportunity to recover quickly from a foreclosure and own their own home again. While many sellers may not be willing to take that risk, it is possible to find sellers who will.