If you weren't on the home or mortgage that went into foreclosure then the event of the foreclosure should not negatively affect your mortgage application. Conventional financing does not consider if you are in a community property state or not when qualifying, so none of your spouses debts (including the mortgage that is still owing) would factor into your qualifying debt to income ratio either. For your wife to be on the mortgage though, a 3 year wait from the foreclosure date would be needed. You could also elect to use FHA financing for yourself, however if the current mortgage still has a balance on it the new lender will include that in your debt to income ratio, so if choosing to go with FHA you'll probably need to wait until that mortgage has been paid off. USDA & VA would also be another option if you are eligible for either, but qualifies similarly to FHA with the community property state factors and all. If you have to go with conventional financing, with your current scores, you are going to need 20% down as there aren't any mortgage insurance providers writing MI policies in California for sub-720 FICO scores, and mortgage insurance is required on conventional loans with less than 20% down.
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