The Federal Housing Authority just made it easier for borrowers with previous hardships to qualify for an FHA-backed loan again. This is welcome news for buyers who went through short sales or foreclosures during the recent economic downturn.
The FHA announced that it is shortening the mandatory waiting periods for homeowners with a black mark on their credit to buy again using an FHA loan. These negative marks might include a short sale, foreclosure or even bankruptcy.
Before the FHA announcement, homeowners who went through one of those hardships faced a three-year mandatory waiting period. With the changes recently announced by the FHA as part of their Back to Work - Extenuating Circumstances Program, buyers who lost their homes due to financial hardships, but who can now prove over a course of the year that they are back on track financially, may qualify for an FHA loan sooner.
Under the new program, FHA announcements indicate a buyer can repurchase again after one year instead of three, provided they can document they lost 20 percent of their income.
This recent FHA announcement has sparked much interest from homebuyers who lost their homes due to extenuating circumstances.
Because the housing downturn is now six years old, there are many more buyers coming back into the market as they have passed the previously allotted waiting periods of three or four years, and they are looking to acquire financing again.
We encourage buyers to become familiar with today’s repurchase rules. These rules vary depending on the financing used and the type of hardship the applicant previously underwent.
Currently more than nine out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA. So, if a buyer is looking to purchase and needs financing, it is more than likely he or she will be using one of these three financing options.
Each of those options has different rules directing the time frame for seeking financing again following a short sale, foreclosure or bankruptcy. To help consumers make sense of these options.
To qualify for the new FHA program, buyers should be prepared to:
• Prove that the foreclosure or short sale was caused by an economic event beyond their control, causing an income reduction of 20% or more for at least six months.
• Prove they have recovered from the economic event that led to the crisis.
• Prove that their credit was satisfactory before the economic event.
• Show that credit has been re-established over the past 12 months.
• Complete at least one hour of one-on-one housing counseling from a Department of Housing and Urban Development-approved counselor.
