Asked by DONNA  |  Submitted August 29, 2014

Why can't I get a refinance or equity loan?

There is a foreclosure ont he house from 2 years ago. The house was sold, and on the credit report it states the amount owed is $0. Why am I still being penalized?

Report Question Report

  Leave Answer

Sign in to MoneyTips
By submitting you agree to our Terms of Service

  Answers  |  2

August 29, 2014

Hello Donna:

I'm not 100% clear on the supporting information for your question; was the home sold (and therefore no longer owned by you), or do you still own it but there was a foreclosure on it from 2 years ago? If you no longer own the home, then clearly you cannot take a loan out on collateral that you do not legally own.

If however you still own the property and this is a question regarding the foreclosure, the answer is that the waiting period on foreclosures is 4 years; meaning a homeowner must wait 7 years from the time of the foreclosure before they are eligible for a new mortgage loan. There is however an "extenuating circumstance" provision that would potentially allow a homeowner, with eligible supporting documentation, to obtain a new mortgage in loan in 3 years.

I hope that helps.

Chad Freeman PRO+
Branch Manager in Bethesda, MD | 08.29.14 @ 19:16

Sorry Donna - Above I made a typo that the waiting period on foreclosures is "4" is 7 years, but you can see that in the next sentence as well.

$commenter.renderDisplayableName() | 10.22.20 @ 04:13


August 29, 2014

Hi Donna, many lenders have a policy that borrowers cannot have foreclosures or bankruptcies within the past 4 years. Some lenders have a 7-year limit. A few "portfolio" lenders have only a 2-year limit. The big banks aren't going to be available for you and the banks that WILL allow foreclosures greater than 2 years ago offer rates about 1% or more higher than you'll see advertised on the internet.

Equity loans are in 2nd position, so in the event you default on your payments to the 1st position lender, they probably won't get any money. This makes them extremely conservative (strict) in their guidelines. You can imagine how they wouldn't want to make a loan to someone that had a foreclosure not that long ago.

If your credit is re-established with a mid-score above 700, solid employment and income documentation, you should be able to get a refinance - but a 5yr ARM is going to be around 4.5% or higher. That's okay. Use it just to buy you a few more years of distance from the foreclosure, then refi again in 2016/2017 with a "best-market-rate" at that time. First, you'll need to find a direct lender with access to B of I or a similar brokered-lender. Good luck!

$commenter.renderDisplayableName() | 10.22.20 @ 04:13