Mortgages Blog

Finance Blogs » Mortgages Blog » FHA loans after foreclosure

FHA loans after foreclosure

By Polyana da Costa ·
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. In addition, you can check your credit report for free at myBankrate.

Follow me on Twitter @Polyanad.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
October 01, 2013 at 6:02 pm

How bout when you go through a devorse from hell where your ex gets 650 dollars a month for two years allamony.30,000 401k money her.names.on the deed but not on the morgage,she refuses to move out, anything so had to foclose cuz obviously i cant rent and pay for her to live scott free,but untill sheriff makes her leave bills pile up bout that joe

September 25, 2013 at 3:42 pm

Sounds like a great program IF you can find any lending institution to even work with you. Of the 15-20 companies we have called, half didn't even know about this program and the other half said they don't know how to go about implementing this program. Unless you can provide a list of lending institutions that will participate this is just another hopeless dream.

September 15, 2013 at 2:21 pm

What if you can show more than 20% loss of income in the 6 months leading up to your short sale, but the overall tax returns don't show any loss of income. Can you still qualify?

September 10, 2013 at 2:33 pm

Who is a good lender that would be aware of this new program? I live in Missouri.

September 09, 2013 at 7:49 pm

I can't find anything on the federal govt website confirming this. OR how much of a downpayment. All I find is after 2 years 10% can do FHA after a short sale/foreclosure

September 08, 2013 at 10:01 am

Hey Joe! it never fails. every story about recovery solutions is met with a sled righteous idiot...who always forgets they had a rough patch. that's what life is all about.. getting through it. Breaking a leg, or in some cases losing a home. Healing needs to start somewhere and it's life. Get over yourself. If you are so mad at these 'bailouts' that you think you are paying for, do the math! you may pay 1/1,000,000,000,000,000 th of it. you are hardly a crusader for justice here. How about you start focusing on the positives, like all those boarded up homes can now be occupied and help housing start to recover.

September 04, 2013 at 2:39 am

This is not good news! This is more bailouts for irresponsible people to be put on the backs of people who live prudently.
Yes, I lost a lot of income but didn't walk from any debt.

September 04, 2013 at 12:36 am

We filed for ch 13 bankruptcy in Dec 2010 due to loss of income. We surrendered our home in the bankruptcy. Almost 3 years later and with only 4 payments left in our BK filing, the bank still hasn't taken possession of our house. With the new program, would be qualify for a new loan a year after of BK is discharged or when the bank takes back our house. We were thinking about doing a short sale.

September 03, 2013 at 10:40 am

I sold as a short sale in 2011 and while I didn't lose my job or have a loss in income, my company did transfer me to a different part of the state and couldn't afford mortgage payments and rent. would this qualify for me?

September 03, 2013 at 7:29 am

I had delinquency from my mortgage payment during my application from my loan modification.I finally shortsaled my house 12/31/13 because the loan modification didn't get approved.Do I still qualify for this new FHA program?