Can You Buy a Home With an Eviction?

It is understandable to wonder about the possibility of purchasing a home if there is a past eviction on record. While an eviction can present challenges in the homebuying process, it does not automatically disqualify an individual from achieving homeownership. Understanding how an eviction history is recorded and how lenders evaluate such information is an important step. This article aims to clarify these aspects, providing insights into the journey toward homeownership even with a previous eviction.

Eviction’s Presence on Records

An eviction itself does not directly appear on consumer credit reports. Instead, what typically shows up are the financial consequences stemming from the eviction, such as unpaid rent, collection accounts, or civil judgments. If a landlord refers unpaid rent to a collection agency, that collection account can appear on a credit report and negatively impact credit scores for up to seven years from the date the payment was past due.

Civil judgments, which are court orders for unpaid debts, were generally removed from credit reports by the major credit bureaus in 2017. However, the underlying unpaid debts that led to the judgment can still be reported as collection accounts or late payments, which significantly affect credit scores. These negative marks can make it challenging to secure new credit or loans and may result in higher interest rates.

Eviction information is also found on tenant screening reports, which compile data from court records. An eviction can remain visible on these reports for up to seven years. While the direct impact on a credit score may diminish, its presence on tenant screening reports can still make securing future rental agreements difficult. Court records are public and may remain accessible longer.

Lender Evaluation of Eviction History

Mortgage lenders assess an applicant’s eviction history as part of their overall risk evaluation. They view an eviction as an indicator of financial responsibility and potential risk, particularly if it involved unpaid debts or a civil judgment. Lenders scrutinize the recency of the eviction, its specific reasons, and whether any associated financial obligations, such as unpaid rent or damages, were resolved. A recent eviction, especially one tied to unresolved financial issues, can raise concerns about an applicant’s ability to manage future mortgage payments.

While no specific mortgage loan program, including Conventional, FHA, VA, or USDA loans, explicitly prohibits applicants with an eviction history, the financial issues often linked to an eviction can make obtaining approval more challenging. For instance, FHA loans are often more flexible regarding credit scores, but any associated collections or judgments from an eviction will be factored into eligibility. Similarly, VA loans emphasize a stable housing history, typically requiring two years without late payments on rent or previous mortgages, though exceptions can be made for extenuating circumstances.

Lenders use an eviction history to gauge the likelihood of a borrower defaulting. If an eviction resulted in a civil judgment or unpaid collections, it directly affects the applicant’s credit score and debt-to-income ratio, which are important metrics for mortgage qualification. Even if the eviction is old, a pattern of financial instability or unresolved debts will be a red flag. Lenders seek assurance of stable financial footing and consistent commitment.

Steps to Improve Mortgage Eligibility

Individuals with an eviction history can take proactive steps to strengthen mortgage eligibility before applying. Focus on credit improvement, especially by addressing collection accounts or judgments from the eviction. Paying off outstanding debts and ensuring timely payments on all current obligations can gradually improve credit scores. Regularly check credit reports for inaccuracies and dispute errors.

Accumulating a larger down payment and building significant cash reserves can further offset perceived risk. Lenders view a substantial down payment (10% to 20% or more) as a sign of financial commitment and stability. Having reserves equivalent to several months of mortgage payments (typically three to six months) provides security, demonstrating the ability to manage payments during unforeseen circumstances.

Prepare a clear, concise, and truthful letter of explanation about the eviction. This letter should outline the eviction’s circumstances, take responsibility, and detail steps taken to prevent recurrence. Lenders appreciate transparency and a demonstration of financial rehabilitation. This document provides context beyond financial records.

Demonstrating financial stability is important. Maintain consistent employment, ideally for at least two years in the same field, to show a reliable income stream. Consistent, on-time payments for current rent and other bills post-eviction serve as evidence of renewed financial responsibility. Some lenders may consider positive rental payment history, especially if documented through bank statements.

Seeking pre-approval early is a valuable preparatory step. Pre-approval provides a realistic understanding of available loan amounts and terms given the individual’s financial situation and history. This process can also help identify areas needing improvement before a full application.

Applying for a Mortgage with an Eviction History

Once preparatory steps are complete, applying for a mortgage with an eviction history begins. Seek lenders experienced with complex financial histories. Smaller banks, local credit unions, or lenders specializing in non-traditional loan profiles may offer more flexibility than large national institutions. These lenders may consider manual underwriting, where a human underwriter reviews the application holistically, rather than relying solely on automated approval systems.

The application process requires standard documentation, including recent pay stubs, W-2 forms for the past two years, and bank statements to verify income and assets. Individuals with an eviction history should provide additional documents. This includes the letter of explanation detailing the eviction’s circumstances and, if applicable, proof that any related debts or judgments have been resolved or are on a payment plan. Providing court-acknowledged payment confirmations for satisfied judgments can be beneficial.

After submitting the complete application, the loan enters the underwriting phase. During this period, the underwriter meticulously reviews all provided documentation. Underwriters often have follow-up questions or request further information, especially concerning past financial challenges like an eviction. Prompt and thorough responses are important for a smooth process.

The underwriter evaluates the overall financial picture, including credit history, income stability, debt-to-income ratio, and the letter of explanation. The goal is to demonstrate that despite past challenges, the applicant possesses the financial stability and responsibility to manage a mortgage. Even with an eviction history, a compelling case built on consistent positive financial behavior can lead to mortgage approval.