FHA trims waiting period for some foreclosed homeowners
Borrowers who went through a bankruptcy, foreclosure, deed-in-lieu or short sale could get an FHA loan on another home in as little as 12 months instead of 3 years.
The Federal Housing Administration (FHA) has a new guideline shortening the waiting time to as little as 12 months for certain borrowers who lost their home due to economic hardship to be considered for a loan. Before the Back to Work—Extenuating Circumstances program, borrowers who experienced foreclosure had to wait for at least 3 years before getting a chance to get approved for an FHA loan.
Economic hardships that are now being considered are foreclosure, deed-in-lieu or short sale. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Some had other negative impact on their credit. The FHA realized each of these recession-related periods of financial difficulty lowered the borrower’s credit, and do not always reflect the ability to repay a mortgage.
To be eligible for the more lenient approval process, documents must show an “Economic Event” such as unemployment or other severe reductions in income that was beyond the borrower’s control. The household income reduction must be at least 20 percent for at least six months. Additionally, borrowers must demonstrate that they have fully recovered from the economic event that caused the hardship and complete housing counseling. According to the FHA, economic recovery involves reestablishing “satisfactory credit” for at least 12 months showing good payment history on payments such as a mortgage, rent, or credit account.
Many Michigan State University Extension offices have HUD-approved housing counselors who offer the pre-purchase housing counseling requirement. Find one near you by visiting MIMoneyHealth. In other areas, find a HUD approved housing counselor.