Shorter Waiting Period for Borrowers Who Experienced Foreclosure or Short-Sale

Devonshire

Recently, the Federal Housing Administration (FHA) announced that it is allowing borrowers who went through a foreclosure, short-sale, bankruptcy or deed-in-lieu to re-enter the market in as little as 12 months.

Generally, borrowers who experienced foreclosure have to wait at least three years before being approved for an FHA loan, but with this new guideline, certain borrowers may be considered earlier if their home was lost as a direct result of an economic hardship.

FHA stated it realizes credit histories may not fully reflect true ability to repay a mortgage for a borrower who went through a recession-related financial event.

To be eligible, borrowers must provide documentation that shows ‘certain credit impairments’ were from loss of employment or loss of income that was beyond the borrower’s control.  Income loss has to be at least 20 percent for a period lasting at least 6 months.

Borrower must show that they have fully recovered from the event that caused the hardship and must complete housing counseling.

Reestablishing satisfactory credit for at least 12 months is another requirement.  Criteria includes 12 months of good payment history on mortgage, rent, or credit accounts.

 

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