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FHA loans after foreclosure

By Polyana da Costa · Bankrate.com
Friday, August 23, 2013
Posted: 5 pm ET

Borrowers who lost their homes through foreclosure or short sale will no longer have to wait three years to get a mortgage to buy another home.

The Federal Housing Administration has changed the rules to help buyers whose credit was tainted due to the loss of a job or income reduction. They will now be able to get a mortgage to buy again after a one-year waiting period through the FHA's new lending program, dubbed Back to Work. The FHA previously required these buyers to wait three years before applying for a mortgage.

Buyers who can document they lost their home to foreclosure or filed for bankruptcy because they were laid off or because their income was reduced by at least 20 percent will be eligible to apply for a loan after paying their bills on time for a year, according to the instructions the FHA sent lenders last week.

The change is effective immediately until September 2016.

Now for the fine print

Borrowers will be required to provide documentation showing the loss of income or employment, including termination notices, tax returns and W-2s.

The program is designed to help potential buyers who went through a period of financial distress but have been able to get back on their feet and can afford a home again, says Jim Sahnger, a mortgage planner for FBC Mortgage in Jupiter, Fla.

"This is not going to work for strategic defaulters," he says.

Speeding up the process

The program is especially helpful to borrowers who went through bankruptcy and foreclosure simultaneously. Often, the lender doesn't take title of the property until years after the discharge of the bankruptcy, which has delayed the start of the waiting period for many potential buyers, he says.

During the one-year waiting period after the foreclosure sale, bankruptcy discharge or short sale closing, the borrower should have:

  • No late housing payments (rent/mortgage).
  • No more than one 30-day late payment on all other accounts.
  • No accounts in collection.

Borrowers will also be required to go through housing counseling prior to being approved for the loan.

Follow me on Twitter @Polyanad.

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41 Comments
ken
September 02, 2013 at 11:39 am

been a lender for over 27 years, this is great news for a lot of recovering borrowers. However, keep in mind that these new programs have to be adopted by each individual lenders. As you should know mortgages funded by each lenders have to be sold back to their investors, whether that maybe Government or private institutions. Therefore, until these guidelines are ready to be traded back and forth lenders, they wont start accepting loans like these. Give it time, good news is that its supposedly approved with these restrictions, so you need to just call around and see who is starting to funds these types of HUD loans. Good luck, KEn

Lawrence
August 31, 2013 at 6:32 am

Does any personally know of a bank or is there a list of Banks in California or Oregon, that someone knows of that is taking applications under this ruling?

Heather
August 30, 2013 at 4:17 pm

Im in Florida and I can't find any lenders that know about this? Do you know of any?

Thierry
August 30, 2013 at 11:33 am

ALL CALIFORNIA MORTGAGE is pleased to announce that we will be allowing FHA Financing for borrowers One Year out of Foreclosure, Short Sale or BK

C Green
August 29, 2013 at 8:47 pm

I am having trouble finding anyone that is considering this new ruling. Do anyone know of a company that will finance using this ruling?

Sheryl Arndt
August 29, 2013 at 2:54 pm

There has been a new HUD ruling lowering the timeframe to 1 year from a BK, foreclosure, short sale, deed in lieu if it was caused due to the economy from a job loss, loss of income, loss of hours, etc.

faith goy
August 28, 2013 at 2:31 pm

We filled BK7 2011 due to job lose in 2010. House was surrendered. We have been reestablishing ever since. I have my separation letter and all our w-2s even though since then they would only be my husbands W-2. Does it matter why you were let go from your job
and do you think we could qualify??

Chaleria Knowles
August 26, 2013 at 8:34 am

I filed bankruptcy in 2011 and my house was foreclosed on in July 2012 (It was in foreclosure from 2009 in Port St Lucie Florida). I lost my home due to partison suit failure. I owned the home with my step-dad, he was the primary. He is in the state of Florida with the home I am in Georgia. He was receiving all the information and I was not. By the time the bank contacted me the home was so far behind that I could not catch up the payments. My step dad refused to do a modification. Can I still qualify for the FHA loan?

Luxx
August 25, 2013 at 12:04 am

Check this out thunny... Looks like FHA loans 12 months after 4closure or BK...It's opening up again out there..

clarence weems
August 24, 2013 at 3:32 am

what about someone who has judgements against them due to credit card bills , because of them getting out of a bad marriage. does this apply to them also if they come to a payment agreement with the creditors

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