You went through a torrid time while your house was repossessed, but since then your financial condition has improved significantly and now, you’re thinking to take out a new mortgage. It is natural to be uncertain about your chances to convince lenders as they would be highly sceptical that you’ll pay your mortgage this time. The key here is to know when & where to apply so that your credit score doesn’t get impacted negatively. It is prudent to take professional help while applying so that you cover all necessary points.
The most critical determinant and invariably the question most lenders begin with is, “when was your house repossessed?”. If the eviction happened less than three years ago, then the probability of approval is quite low. Even if a lender approves the loan, the deposit required would be extremely high so that the lender could minimize the associated risk. In case the eviction due to mortgage arrears happened more than three years ago, the probability for approval improves and high percentage of loan-to-value (LTV) could be considered by many lenders. Repossession happened more than six years ago may get LTV close to what people with good credit score get provided the lender thinks that your financial condition is stable now.
Interest rates follow the same trend as with the date of repossession; so, less than 3 years would get steep interest rates, and six years or older can attract close to the best interest rates available in the market. The next important question asked by lenders is, “what was the reason behind repossession?”. Now this is crucial because, irrespective of how financially sound you are now, if the reason for default was your reckless spending or mismanagement of funds, then it’s natural for a lender to think that you’ll default again on mortgage payments. Cases where the default was due to circumstances beyond the borrower’s control, the chances for approval become better. If there was a money judgment attached to the repossession of your previous house, then there is no statute of limitation when your lender can claim this amount; this makes taking out a new mortgage more difficult.
It is important to understand that taking out a new mortgage after eviction will be difficult (if not impossible), and there are many variables that will be thoroughly scrutinised by lenders before they even consider your application for approval.