Articles for Financial Advisors

Real Estate Foreclosures

Real Estate Foreclosures

As of October 2013, most jumbo mortgage lenders (loans > $417,000 in most parts of the country and $625,501 in pricier markets) remain very selective. Foreclosures stay on credit reports for seven years; a foreclosure can also lower a credit score by over 100 points. Borrowers who previously were always on time with monthly payments could see their FICO score drop from 820 to 580 following a foreclosure. FICO scores range from 300 to 850.

Foreclosures for homes worth > $1 million peaked in 2011; 2009 for homes worth < $1 million (source: RealtyTrac). Lenders who originate private jumbos often follow Fannie Mae and Freddie Mac guidelines. In order to get such a loan, these guidelines require defaulters to have re-established their credit profile for at least seven years after foreclosure. In the case of borrowers who overcame a financial hardship beyond their control, the waiting period after an improved credit score may be as low as 2-3 years.

If you have clients seeking a jumbo loan and went through a foreclosure, consider the following: [1] cash reserves (banks may require a 22-50% down payment plus three months of mortgage payments in savings); [2] extensive interview (lengthy conversation with the lender to determine circumstances of the foreclosure); and [3] a higher interest rate is likely to be charged due to the greater risk assumed by the lender.

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