If you have gone through a foreclosure, short sale, bankruptcy, or deed in lieu of foreclosure, you can get a new FHA mortgage loan after waiting as little as one year, if you meet certain criteria. Read on to learn more about FHA loans and find out if you might qualify for a FHA mortgage under this new program.
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The Federal Housing Administration (FHA), which is a part of the U.S. Department of Housing and Urban Development (HUD), insures lenders against some of the risk involved in lending to borrowers who often don't qualify for conventional home loans, including first-time homebuyers or those with low or moderate incomes. The loan itself comes from your lender, not the FHA.
Previously, borrowers were generally ineligible for a new FHA loan until three years after a foreclosure, short sale, or deed in lieu of foreclosure and two years after a Chapter 7 bankruptcy, though the death of a spouse or a medical emergency could cut the wait time to one year.
During the recent recession, many borrowers experienced unemployment or other severe reductions in income and ultimately lost their homes. In many cases, this was a one-time hardship due to the recession, not a pattern of bad financial decisions. The FHA wants to make it easier for those people to get a new home loan with FHA backing since their credit histories may not fully reflect their true ability to repay a mortgage.
As a result, the FHA recently changed its mortgage rules so that some borrowers can qualify for a new FHA loan just one year after a foreclosure, short sale, deed in lieu of foreclosure, or bankruptcy as part of its new Back to Work – Extenuating Circumstances program.
The new extenuating circumstances policy will remain in place for three years, from August 15, 2013 through September 30, 2016.
The FHA reduced the waiting period to one year if you can show you went through a foreclosure, short sale, bankruptcy, or deed in lieu of foreclosure due to an external economic event, like a loss of income or employment (or a combination of both) through no fault of your own.
To be eligible, you must prove that you are back on track financially, which means meeting all of the following criteria.
If you meet these requirements, you may qualify for an FHA loan, which allows you to put down as little as 3.5% on a mortgage.
Keep in mind though that, even with these new rules in place, whether a particular borrower actually gets financing is ultimately up to the lender. While the FHA rules may say lenders can provide the loan, individual lenders may have significantly stricter standards than the FHA.
To learn more about this FHA program, go to www.hud.gov. Type “Back to Work” in the search box. Then click on the link in the list of results called “Mortgagee – HUD” and go to Document Number 13-26 called “Back to Work – Extenuating Circumstances” to download a PDF about the program.