Having your car repossessed can be an extremely stressful and embarrassing experience. Not only do you lose your vehicle, but it also damages your credit score and makes it harder to qualify for loans in the future.
Many people wonder if having a prior car repossession will automatically disqualify them from getting a mortgage, especially an FHA loan. The good news is that it is possible to get an FHA loan even if you’ve had a car repossessed in the past. However, there are certain requirements you’ll need to meet for approval.
In this comprehensive guide, we’ll cover everything you need to know about getting an FHA mortgage after a vehicle repossession, including:
- How a car repossession impacts your credit and loan eligibility
- FHA guidelines for borrowers with a car repo
- Tips for improving your chances of approval
- Alternatives if you don’t qualify for an FHA loan
How Does a Car Repossession Affect Your Credit?
To understand how a repossession affects mortgage approval, you first need to know how it impacts your credit. Here are some of the major consequences:
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Late payments – Your missed car payments that led to the repossession will show up on your credit report and hurt your credit score, FHA requires at least a 580 credit score
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Repossession notation – The repossession itself will be listed on your credit report for 7 years, This type of derogatory mark makes lenders see you as a riskier borrower
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Potential collections – If you still owe money after the car is sold, the remaining balance could be sent to collections, further damaging your credit.
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Lawsuits and wage garnishment – If you don’t pay the deficiency balance, you could be sued, resulting in a judgment on your credit report.
As you can see, a repossession can seriously jeopardize your chances of qualifying for an FHA loan or other mortgage. The good news is the damage decreases over time as the negative information ages.
FHA Loan Requirements After a Car Repossession
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. FHA loans allow borrowers to qualify with lower credit scores and down payments than conventional loans.
However, FHA does have minimum credit standards borrowers must meet:
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FICO score of at least 580 – Many lenders require scores of 620 or higher for approval. The lower your score, the harder it will be to qualify.
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2 years since discharge of Chapter 7 bankruptcy – FHA requires 2 years of reestablished credit following bankruptcy.
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No foreclosures in the last 3 years – You’ll need to wait 3 years after a foreclosure to qualify for FHA financing.
Beyond these published requirements, getting an FHA loan after a repossession comes down to the lender’s discretion. Here are some other factors they will consider:
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How long ago did the repossession occur? More recent repos hurt your chances.
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Is there still an outstanding deficiency balance? Having this paid off improves your case.
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What does the rest of your credit report look like? A few late payments may be OK, but multiple negatives will make approval difficult.
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What is your overall debt-to-income ratio? Can you afford the monthly mortgage payment plus existing debts?
While every situation is different, it’s generally recommended you wait at least 1 year after a vehicle repossession before applying for an FHA loan. Meeting the requirements above is the bare minimum – you’ll boost your chances if you spend time improving your credit first.
Tips for Increasing Your Chances of Approval
If you’ve had a car repossessed in the last couple years, you may need to take steps to rebuild your credit before attempting to get an FHA mortgage. Here are some tips for improving your chances of approval:
Pay off any outstanding balances – If you still owe money after the car was repossessed, try to pay off the deficiency balance right away. Collection accounts should also be paid off prior to applying. This will help improve your debt-to-income ratio.
Get current on all accounts – Make sure all your existing credit accounts are current and paid on time. One late payment can drop your scores. Setting up automatic payments can help avoid issues.
Lower credit utilization – Keep credit card balances low compared to your credit limits. High utilization negatively affects your credit scores.
Become an authorized user – Ask a family member with good credit to add you as a user on a credit card. Their on-time payments will be added to your credit file.
Limit new credit applications – Apply for new credit sparingly, since too many hard inquiries in a short timeframe can drop your scores.
Monitor your credit report – Review your credit reports from the three bureaus for any errors to dispute. This can help boost your credit scores.
Wait for time to pass – Accounts fall off your credit report after 7 years. As negative items age, they hurt your credit score less.
Following the steps above can help you rebuild and improve your credit to maximize your chances of qualifying for an FHA loan. Waiting at least 12 months after a repossession is a good rule of thumb before applying.
What Are Your Options if You Don’t Qualify for FHA?
For some borrowers, it may be challenging to meet FHA’s minimum credit standards after a car repossession. If you’ve tried to improve your credit but still don’t qualify, here are some alternative mortgage options to consider:
FHA with a qualified cosigner – Adding a cosigner with good credit may help you meet FHA requirements. The cosigner will be equally responsible for the mortgage.
Portfolio lending programs – Some banks offer their own portfolio loan programs with more flexible underwriting for applicants with credit challenges.
FHA subprime lenders – Certain lenders specialize in FHA loans for borrowers with scores between 500-579. Interest rates are higher to offset the risk.
USDA loan – For properties in rural areas, USDA-guaranteed mortgages only require a credit score of 580 and may be an option.
VA loan – Veterans and military members may qualify for a VA home loan with a prior repossession based on additional compensating factors.
Fannie Mae HomeReady/Freddie Mac Home Possible – These conventional programs allow lower credit scores and income from non-borrowers.
Wait and save up a larger down payment – Coming up with a down payment of at least 10-20% makes lenders more comfortable approving your application.
Rent and rebuild your credit – If you need more time to improve your credit, keep renting and wait 1-2 years before reapplying for a mortgage.
While it may require some persistence, there are mortgage programs available even if FHA declines your application initially after a repossession. Be patient, keep working on improving your credit profile, and explore multiple options.
The Bottom Line
Having your vehicle repossessed can significantly setback your chances of qualifying for a mortgage, due to the damage it causes to your credit. However, it is possible to get approved for an FHA loan with a prior car repossession on your record, if you meet the minimum requirements.
Strongly consider waiting at least 12 months after the repossession before applying and take steps to improve your credit in the meantime. While approval is never guaranteed, this will increase your chances of getting an FHA loan. Monitor your credit, pay down debts, and explore alternative mortgages if you don’t initially qualify. With time and a focused effort, homeownership is still achievable.
Author: Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans
I have helped over 589 Kentucky families buy or refinance their home over the last 18 years. Realizing that this is one of the biggest, most important financial transactions a family makes during their lifetime, I always feel honored and respected when I am chosen to originate their personal home loan. You can count on me to deliver on what I say, and I will always give you honest, up-front personal attention you deserve during the loan process. I have several advantages over the large banks in town. First, I can search and negotiate for your loan options through several different mortgage companies across the country to get you the best deal locally. Where most banks will offer offer you their one set of loan products. I have access to over 10 different mortgage companies to broker your loan through to get you the best pricing and loan products that may not fit into the banks program due to credit, income, or other underwriting issues. You will not get lost in the shuffle like most borrowers do at the mega banks; youre just not a number at our company, you are a person and we will treat you like one throughout the entire process. Give us a try or let us compare your options on your next mortgage transaction. Call me locally at 502-905-3708. Free Mortgage Pre-Qualifications same day on most applications. Email me at [email protected] with your questions I specialize in Kentucky FHA, VA ,USDA, KHC, Conventional and Jumbo mortgage loans. I am based out of Louisville Kentucky. For the first time buyer with little money down, we offer Kentucky Housing or KHC loans with down payment assistance. Customer Testimonials We just moved here the first of January in 2017 from Ohio to the Louisville, KY area and we found Joels website online. He was quick to respond to us and got back the same day on our loan approval. He was very knowledgeable about the local market and kept us up-to date throughout the loan process and was a pleasure to meet at closing. Would recommend his services. Angela Forsythe “We were searching online for mortgage companies in Louisville, Ky locally to deal with and found Joels website, and it was a godsend. He was great to work with, and delivered on everything he said he would do. I ended up referring my co-worker at UPS, and she was very pleased with his service and rates too. Would definitely vouch for him.” September 2016 Monica Leinhardt “We contacted Joel back in July 2011 to refinance our Mortgage and he was great to work with. We contacted several lenders locally and online, and most where taking almost 60 days to close a refinance, Joel got it done in 23 days start to finish,I would definetly recommmend him. He got us 3.75% with just $900 in closing costs on our FHA Streamline loan. Kayle Griffin “Joel is one of the best Mortgage Brokers I have ever worked with in my sixteen years in the real estate and mortgage business.” May 25, 2010 Tim Beck “Joel has always worked very hard to keep his word and to work out seasonable solutions to difficult problems. He is truly an expert in FHA and other type loans.” September 1, 2010 Nancy Nalley “I have worked with Joel since 1998. He is a great loan professional.” I refer most of my Louisville, Kentucky area home buyers to him and he always take special care of them. August 23, 2012 Jon ClarK “Joel Lobb is a real professional in the lending industry, with many years of experience, he is the one to go to for any mortgage lending needs.” August 22, 2011 RICHARD VOLZ , Residential Sales , Remax Foursquare Realty “When looking to purchase our new home in 2006, I had the pleasure of meeting Joel Lobb. Not only was he personable and easy to reach, he was extremely knowledgable in his field and made sure to find us the best rate and a top notch mortgage company. We were able to complete the process in less than 3 weeks with his expertise. I find Joel to have the utmost high integrity and I recommend him to anyone who says they are need of mortgage assistance. He is also fantastic and keeping everyone up to date on the latest in the housing industry through his twitter posts. He provided great results for our family and we still communicate to this day!” August 21, 2010 Stacie Drake “We first use Joel on our new home purchase in 2007 in St Matthews, Kentucky area and he was great to work with. We have since refinanced our home with him in 2010 when rates got really low and he has always delivered on what he says. I could not imagine using anyone else.” Melody Glasscock March 2014 Absolutely Amazing!! I emailed Joel after I had just got a denial from a bank and just thought i would try to get some advice on what my next steps would be to get a house. I honestly didnt expect to even get a reply because my credit is not great. That was about a week and a half ago. I just signed a contract on a house last night. ONLY because of Joel Lobb. He even worked with us throughout the weekend, which shocked me. Best decision I have ever made. THANK YOU SO MUCH FOR WORKING WITH US THROUGHOUT THE ENTIRE PROCESS. Cee Bellisle August 2017 Contacted him about buying a home and he was great to work with. I was moving to Louisville Ky to take a new job and he walked me through the entire process. He explained to me all the different options for FHA, VA, USDA mortgage loans and credit score requirements versus Fannie Mae. Since I was a first time home buyer I needed alot of help and guidance. I would definitely recommend him. Fast to respond and available to answer questions that I or my realtor had after hours. Anderson Johnson April 2018 Wow, what a great loan officer. I was referred to him by our agent and he was great to work with. We used him for a USDA no money down loan in Shelby County and we were really impressed. We were afraid we could not buy a home since we did not have money saved for a down payment, but Joe l was able to get us a zero down loan and we even got our appraisal fee and good faith deposit back at closing. We actually got money back at closing!!! I Cant think him enough. Our family moved from our apartment in the south end of town to get our own home with 5 acres for our kids and 2 dogs, at a payment that is equal to our rent payment also. .Thanks Again Joel. May god bless you Patty Locker We contacted Joel about buying a house on our move from Ohio for my husbands job transfer with Ford. We put a lot of trust in him since we were new to the area and first time home buyers in the Louisville KY market, and he always delivered on what he said. It took us a while to find a home due to the lack of homes, but once we got one, he was always quick to respond our questions via text or email ,and kept us informed through the process. We got to meet him at the closing and he was super nice and even got us a closing gift for our home which we didnt expect at all. Super nice guy !!! I would definitely recommend him for a local Home loan in the Louisville area. pam dolby I got a VA loan with Joel and he was great. He is an ex-army guy so he could relate to my past experiences of being a veteran and moving around the country a lot. I had some credit issues that required a little extra work but Joel was able to find A VA lender to approve my situation as far as having past bad credit problems and a lower credit score. We closed yesterday on our home here in Louisville and we could not be happier. We finally have a home of our own thanks to Joel . I would definitely recommend him for a mortgage loan. Great experience and closed 8 days before expected close date so we were able to move in early. larry summit I contacted Joel about the $10,000 KY Housing Grant last month and we were able to get it and I just closed on my home. He was great to work with and if you are a first time home buyer here in Louisville, I would definitely contact him. I met him at his office and he was very nice and knowledgeable and kept me informed through the process. No surprises either so I was very happy. I am new homeowner thanks to Joel . Joel Lobb Senior Loan Officer American Mortgage Solutions, Inc. 10602 Timberwood Circle Suite 3 Louisville, KY 40223 phone: (502) 905-3708 Fax: (502) 327-9119 [email protected] http://www.mylouisvillekentuckymortgage.com/ Company ID #1364 | MB73346E This website is not an government agency, and does not officially represent the HUD, VA, USDA or FHA or any other government agency. http://www.nmlsconsumeraccess.org/ Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicants eligibility and market conditions. NMLS#57916 http://www.nmlsconsumeraccess.org/ . The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification. View all posts by Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans
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We just moved here the first of January in 2017 from Ohio to the Louisville, KY area and we found Joel’s website online. He was quick to respond to us and got back the same day on our loan approval. He was very knowledgeable about the local market and kept us up-to date throughout the loan process and was a pleasure to meet at closing. Would recommend his services.
“We were searching online for mortgage companies in Louisville, Ky locally to deal with and found Joel’s website, and it was a godsend. He was great to work with, and delivered on everything he said he would do. I ended up referring my co-worker at UPS, and she was very pleased with his service and rates too. Would definitely vouch for him.” September 2016
Monica Leinhardt
“We contacted Joel back in July 2011 to refinance our Mortgage and he was great to work with. We contacted several lenders locally and online, and most where taking almost 60 days to close a refinance, Joel got it done in 23 days start to finish,I would definitely recommend him. He got us 3.75% with just $900 in closing costs on our FHA Streamline loan.
Kayle Griffin
“Joel is one of the best Mortgage Brokers I have ever worked with in my sixteen years in the real estate and mortgage business.” May 25, 2010
Tim Beck
“Joel has always worked very hard to keep his word and to work out seasonable solutions to difficult problems. He is truly an expert in FHA and other type loans.” September 1, 2010
Nancy Nalley
“I have worked with Joel since 1998. He is a great loan professional.” I refer most of my Louisville, Kentucky area home buyers to him and he always take special care of them. August 23, 2012
Jon ClarK
“Joel Lobb is a real professional in the lending industry, with many years of experience, he is the one to go to for any mortgage lending needs.” August 22, 2011
RICHARD VOLZ , Residential Sales , Remax Foursquare Realty
“When looking to purchase our new home in 2006, I had the pleasure of meeting Joel Lobb. Not only was he personable and easy to reach, he was extremely knowledgable in his field and made sure to find us the best rate and a top notch mortgage company. We were able to complete the process in less than 3 weeks with his expertise. I find Joel to have the utmost high integrity and I recommend him to anyone who say’s they are need of mortgage assistance. He is also fantastic and keeping everyone up to date on the latest in the housing industry through his twitter posts. He provided great results for our family and we still communicate to this day!” August 21, 2010
Stacie Drake
“We first use Joel on our new home purchase in 2007 in St Matthews, Kentucky area and he was great to work with. We have since refinanced our home with him in 2010 when rates got really low and he has always delivered on what he says. I could not imagine using anyone else.”
Melody Glasscock March 2014 Absolutely Amazing!! I emailed Joel after I had just got a denial from a bank and just thought i would try to get some advice on what my next steps would be to get a house. I honestly didn’t expect to even get a reply because my credit is not great. That was about a week and a half ago. I just signed a contract on a house last night. ONLY because of Joel Lobb. He even worked with us throughout the weekend, which shocked me. Best decision I have ever made. THANK YOU SO MUCH FOR WORKING WITH US THROUGHOUT THE ENTIRE PROCESS.
Contacted him about buying a home and he was great to work with. I was moving to Louisville Ky to take a new job and he walked me through the entire process. He explained to me all the different options for FHA, VA, USDA mortgage loans and credit score requirements versus Fannie Mae. Since I was a first time home buyer I needed alot of help and guidance. I would definitely recommend him. Fast to respond and available to answer questions that I or my realtor had after hours.
Anderson Johnson April, 2018
We moved from Michigan to Northern Kentucky area and we were really impressed. We got a USDA loan no money down and closed in less than 3.5 weeks. We shopped around online with other lenders but Joel was always first to respond and his rates were just a little better than other lenders. He kept us informed through the process along with our realtor and there was absolutely no surprises like we heard from other co-workers and friends that they experienced in their loan process. We have already referred another co-worker to Joel . He’s AWESOME!
I contacted Joel about the $10,000 KY Housing Grant last month and we were able to get it and I just closed on my home. He was great to work with and if you are a first time home buyer here in Louisville, I would definitely contact him. I met him at his office and he was very nice and knowledgeable and kept me informed through the process. No surprises either so I was very happy. I am new homeowner thanks to Joel .
Betty parsons
A little about me
As a life-long Kentucky resident, I have helped over 579 Kentucky families buy or refinance their home over the last 17 years. You can trust me for your next mortgage loan. I deliver on what I say and I will give you honest, up-front personal attention you deserve for your home loan. I have several advantages over the big- mega banks in town. First, I can shop your loan thru different mortgage companies across the country to get you the best deal out there, whereas most banks will offer offer you there one and only deal. I have access to over 15 different mortgage companies to broker your loan thru. My rates and fees are just as good or better than local banks and you will not get lost in the shuffle like most borrowers do at the mega banks; your just not a number at our company, you are a person and we will treat you like one throughout the entire process. Free pre-approvals within 2 hours and get your loan closed within 15 days. Give us a try or let us compare what you have now. Call me or text me locally anywhere in KY at 502-905-3708; this is my personal cell phone and I carry it on me at all times. Free credit reports and approvals.
How To Purchase A Home With A Previous Repossession – Credit Monitoring Services,First Time Buying
FAQ
What will disqualify you from an FHA loan?
Does car repossession affect a home loan?
Can I still get a loan with a repossession on my credit?
Can repossession be removed from credit report?
How long does a car repossession stay on your credit report?
The repossession of a vehicle stays on your credit report for seven years. However, the late or missed payments that led to the repossession will also be reported and negatively impact your credit.
Can I get a mortgage if my car is repossessed?
Having your car repossessed can seriously harm your credit and your ability to get approved for a mortgage loan. Paying off your car loan and taking steps to improve your credit can help you recover. How Long After a Car Repossession Should You Wait to Get a Mortgage?
Can you get a home loan if you have a repossession?
In most cases, you can get a home loan if you have a repossession on your credit report. However, it will not be easy. The current mortgage market has tightened due to the economic effects of the coronavirus, making it more challenging for those with a repossession in their credit history.
Can a car be repossessed after a missed payment?
Depending on state law, a lender may be able to repossess your car after one missed payment, but typically vehicle repossession occurs once your loan payments are 90 days in default. A repo can seriously harm your credit, making it difficult to take out a new mortgage loan. Vehicle repossession can hurt your credit in many ways, including: