Can I buy a home after foreclosure?

My home is seriously underwater and I'd like to give it back to the lender. My mortgage balance is more than $100,000 over the property's value. I'd rather put my money into a better and cheaper place. How long will it take before I can get a mortgage on a new home?

The hard money solution

There are options for those who walk away (also called strategic defaulters) but they aren't pretty. You could conceivably finance a new home immediately with a hard money lender. That means making a very high down payment (30% to 50%), paying several points upfront, and being charged a rate that might approach 20%. You may find the payment under these circumstances is higher than what you're paying now.

Seller financing

Your other choice if you want to buy right away is to purchase a home with seller financing. Understand that the only way you are likely to get a loan from a seller is by making a huge down payment and paying a higher-than-market rate. However, your costs are likely to be substantially less than with a hard money lender. Just get an appraisal because otherwise you might pay more than the home is worth, adding to the cost of your financing.

Fannie, Freddie and FHA

The big three govern about 90% of the mortgages in the country today, and if you want the lowest mortgage rates on your next purchase, your loan will likely have to conform to the guidelines of one of these entities.

Foreclosure and FHA

• 3 years must pass before you can get a loan.
• This is reduced for those with extenuating circumstances (does not apply to you).

Foreclosure and Fannie Mae

• Your wait is 7 years from the date of the foreclosure sale.
• It drops to 3 years for people with extenuating circumstances.
• The wait is 7 years for a second home, cash-out mortgage refinance, or an investment property purchase.

Foreclosure with a Freddie Mac Loan

• 5 years must lapse from the completed foreclosure sale date.
• This drops to 3 years for borrowers with extenuating circumstances.

What about a deed-in-lieu or short sale?

For FHA, a deed in lieu of foreclosure follows the same guidelines as its foreclosure policy, but waiting periods drop in accordance with Fannie Mae and Freddie Mac's short sale policy. Here are those wait times and down payments:

Short sale and FHA

• You can purchase right away with no mortgage default.
• It's 3 years wait if you're in default at closing.
• Reestablishing good credit and proving extenuating circumstances shorten wait time.

Short sale and Fannie

• 2-year wait with 20% down
• 4-year wait with 10% to 20% down
• 7-year wait with less than 10% down
• 2-year wait with extenuating circumstances and more than 10% down

Short sale and Freddie Mac

• 4-year wait regardless of down payment
• 2-year wait with extenuating circumstances