Dear Liz: Is it true that we can't refinance our home until seven years after a foreclosure? We lost a rental property six years ago. Our credit scores now are in the 740 range, and we are anxious to take advantage of lower rates since our mortgage rate is 5.75%. Other than the foreclosure, our credit is perfect.
Answer: As foreclosures surged, the agencies that buy most mortgages increased the amount of time troubled borrowers had to spend in the “penalty box” before being allowed another mortgage.
Fannie Mae and Freddie Mac still have a seven-year waiting period after foreclosures. But that has been shortened to three years when borrowers can prove “extenuating circumstances,” such as a prolonged job loss or big medical expenses. Waiting times for other negative events, such as bankruptcy or short sale, have been reduced to two years with extenuating circumstances. Otherwise, it’s four years.
There are other loan programs that are even more forgiving. For example, the FHA has a three-year waiting period that can be shortened to one year if borrowers participate in its “Back to Work” program, which requires they document a significant loss of household income, that their finances have fully recovered from the event and that they’ve completed housing counseling. The Veterans Administration, meanwhile, makes loans available one to two years after foreclosure.
Could new job affect credit rating?
Dear Liz: I have been employed at a small business, a sole proprietorship, for 34 years. My boss is going to just shut down the business, with no plan for succession. I have a job offer from a rival firm, so I don't plan on being out of work for very long. How will this affect my credit rating? If I apply for a loan after being employed for, say, six months at the new firm, will the short time at that job be a negative mark against me? Should I hurry to apply for a loan before the business shuts down? Would that be illegal or unethical, since I know that I won't be there much longer?
Answer: Few people know with any certainty how long they’ll remain in their current jobs. If only those who planned to stick with their employers indefinitely were allowed to apply for credit, lenders would go out of business.
That said, a recent job change can complicate the process for getting some loans, such as a mortgage. If you’re planning to borrow the money anyway and can complete the loan process before changing jobs, you’ll likely have an easier time getting approved.
While some lenders take job stability into account, your credit scores do not. Credit scoring formulas don’t include any information about employment or income. You get and keep good scores by using credit responsibly. But part of responsible credit management is not applying for loans you don’t need, so don’t rush out to borrow money just because you can.
Survivor benefits for divorcees
Dear Liz: I am 76 and widowed. I’ve been collecting half of my ex-husband’s Social Security payment for the last nine years. We were married for 20 years. He remarried in 1987 and his wife is still living. He is now terminally ill with cancer. Am I eligible for survivor benefits?
Answer: You will be. If you qualify for divorced spousal benefits while your ex is alive, you will qualify for divorced survivor benefits when he dies. Instead of collecting an amount equal to half his benefit, your check will increase to 100% of the amount he was receiving.
Survivor benefits differ from spousal benefits in another key way. If you remarry, divorced spousal benefits end. Survivor benefits can continue after marriage, as long as you’re 60 or over when you re-tie the knot.
By the way, your benefits don’t take any money away from his current wife. She, too, will be eligible for a survivor benefit equal to what he was getting, unless her own retirement benefit is greater. One primary earner’s work record can support a number of divorced spouses in addition to a current spouse, as long as the previous marriages lasted at least 10 years each.