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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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54 Comments
Frank
February 28, 2014 at 9:15 am

Need Help After Foreclosure.
I (urgently) need a mortgage loan. My failed marriage resulted in her keeping the house and subsequently her letting it go on foreclosure in June 2013. I really cannot afford to wait years of credit repair to get a house. I'm willing to cash my 401K for the down payment, but still need about $50k for the difference. House prices are flying away, as the prices climb. This' a historic opportunity for the buyers, and I don't want to be a victim twice - losing due to marriage and missing opportunities. Ps help.

David
November 19, 2013 at 8:20 am

I went through chapter 7 bankruptcy in December 2009, a foreclosure followed in September 2011, after repeated attempts at a mortgage modification. My wife and I are working, we have money saved for a down payment, I just need the mortgage. Several lenders have told me they can't help. Can anyone help me?

Jessica
November 07, 2013 at 7:38 pm

My husband is a disabled veteran and we filed bankruptcy because we went through a four year lawsuit on our house. Technically we won but was only awarded enough to barely pay the lawyer. We couldn't afford to pay two mortgages so we let it go. We are currently renting and it will be a year in February 2014 that we got discharged . Is there anyway to get a loan now or do we have to wait two years like everyone keeps telling us? Please any help is greatly appreciated !

Linda Jones
October 20, 2013 at 8:55 pm

From 97-2009 we were living in California and had a successful business partnership for 10 years. After loosing over 50% of our business, we could no longer sustain the business partnership, pay our part of the loans, pay mortgage on our rental (which we could not keep rented) and our primary residence. In addition, we could not find any jobs and we had a son in high school. We moved to Texas to be closer to family. We were homeless for 3 months (that is we could not afford housing and had to live with friends). Last year we filed for bankruptcy due to a lawsuit regarding the business. We've been here 4 1/2 years, have stable jobs, income and want to buy again. Any hope?

Alain Belanger
October 16, 2013 at 5:48 pm

I never blamed anyone for the 355,000 mortgage I was approved for with adjustable rates and arm I was grateful a bank gave me a loan I will fix the house with every penny I have and refinance to lock in rate but being self employed with twins on the way and the economy went flying down the tubes it was like carrying a box with my life in it and the bottom blew open with no hope been struggling ever since are there any programs to help me get back into another home I can call mine any info would help I did go through four closer and bankruptcy and need to get credit straightened out

talishiya
October 14, 2013 at 9:29 pm

Can someone contact me

talishiya
October 14, 2013 at 9:28 pm

It's always something who and how do we get in contact with someone.

George Jetson
October 13, 2013 at 7:08 pm

Well it is great except for the fact that I lost $250k in payments on a "bad" loan (as deemed by the Govt settlement) and the $250k downpmt. Hence, funds for a new purchase are limited.

Kimberley
October 13, 2013 at 6:51 pm

I have always thought that those of us who played by the rules, met our obligations but suddenly lost everything due to the tanking economy/job loss should be given a second chance sooner than later. This is a good tool to ramp up the house selling market and get some monies flowing through the economy which is good for all of us. I cannot wait to move on this and am gathering my paperwork today! I have about 10 months to go and I will be ready! Finally someone in government heard my pleas!

surinder singh
October 09, 2013 at 5:05 pm

I need a loan application forms.