The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to re-enter the market and purchase a home using an FHA insured mortgage in as little as 12 months, according to a mortgage letter released Friday 8/23/13.
Currently borrowers who experienced a foreclosure, deed-in-lieu, or short sale must wait at least 3 years before getting a chance to get approved for an FHA loan, however, with the new guideline certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.
For borrowers who went through a recession-related financial event, FHA stated it recognizes the hardships faced by … borrowers (hit by recession events) and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
Extenuating circumstances are important to FHA in evaluating whether a borrower who experienced a foreclosure, short sale, deed-in-lieu, bankruptcy or other event in the past but is now employed and paying credit accounts on time should be considered eligible for a new FHA-insured loan. The new guidance offers the potential of waiving FHA’s standard waiting periods from one of these events to qualifying for a new mortgage.
In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were the result of loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.
Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and completed housing counseling.
According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.
The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016. For more information on this topic please contact Tom McLoughlin with Annie Mac Home Mortgage at 614.404.9567 or by clicking here.
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