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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
Treena
June 08, 2014 at 10:29 am

My husband and I are right in the middle of this very situation. We had to file Chapter 7 and Foreclosed on our home in 2010. May of this year we found a new home, signed the purchase agreement and the closing date is set. My broker emails me about a CAIVRS on our file and would have to wait until November 2014. We researched our options and completed the Home counseling for the Back to Work program. Now we are waiting to see if FHA will approve our circumstances. The devastating part of it all is my landlord has just rented our current property. We have less than 30 days to move to where???

John
June 03, 2014 at 10:50 am

I agree with Russ's post above. I too meet every know/published requirement and guideline for the FHA's Back To Work program and still can't find an underwriter willing to approve my mortgage application. This program is one to just make politicians and FHA bigwigs look good in the press. It does nothing to ensure that lenders are underwriting files in good faith. Shame on the lenders and the politicians who allow them to get away with this nonsense.

Evan
May 25, 2014 at 10:32 pm

Michael Evans please contact me at my email address so I can contact you. Thanks!

Kebin
May 15, 2014 at 11:39 pm

If you have had a fha foreclosure in the past you need to find out when your foreclosure was settled by the government. We applied for a fha loan was approved. Then after most of paper work was done loan officer told us we could not get the loan due to a 3 year waiting period . We have waited almost 4 yrs. was told that foreclosure in the past was just settled 1 year ago. So have to wait 2 more years for a fha loan
Was never told about when foreclosure was settled. All of hopes of owning a home just went down the drain

Michael Evans
May 07, 2014 at 10:51 am

It can be confusing and deflating to consumers who have to wait 2-7 years after the unfortunate incident of a Foreclosure or Short sale or Deed in Lieu. Most of these consumers are now renting from a landlord or are living with family or friends to have a roof over their head. However there is solutions to help these consumers get back the Pride of Homeownership and Not have to wait years to buy their home again. Feel free to contact me so I can share the right path to your new home goals.

Loretta P.
April 08, 2014 at 8:29 am

Though he stop working long before hand to take care of her after my husband's wife died he made lots of bad decisions with the life insurance he received and lost their home several years later to foreclosure. It was sold for more than he owed in Feb. '13. I alone bought a HUD home for cash in '10 and sold it a year later. We are in our early 60's, don't work (he's retired Army & I'm a homemaker)or do we have any credit cards or bill other than living expenses, car insurance & our military health insurance and we have a perfect rental history. Our monthly income is over $3600.00.
How likely are we to be able to buy another home via FHA or VA by the time our 2nd. year lease is up on this house in Dec. '14?

Tim Kisler
April 01, 2014 at 4:14 pm

Dont think you willbe approved for anything less than 18% interest and pay on this home for 15 years without a dime going to the actual balance....so when it comes time to refinance or sell, your way underwater and have no choice but to have yet another f/c or short sale! This program is a joke and just another way to scam the hard working who have bumps in their lives.

bette y. brown
March 29, 2014 at 10:27 pm

I lost my home of (45)years due to trusting a dishonest realtor who convinced me to put the property in another persons name due to my low fico score. Before I could find someone I knew and trusted,he had put it in secretarys name and did two loans for her using my equity without mylnowledge and put it back in my name when I owed more than it was worth.i am now a disabled senior living on a "fixed"income who has. B
"been living in my car for the past three years
.

Russ
March 17, 2014 at 11:06 pm

The back to work program is a joke and is not working as it was designed to do. Mortgage lenders are afraid to sign off in underwriting and people that need these loans are not getting them. Read the stories online how people have been denied in underwriting and are loosing earnest money along with other money they paid to get through this process. I met the qualifications in every way and when it got to underwriting we were told by the underwriting lady that She felt we didn't meet the qualifications good enough for her to approve us. This program is designed so a loan underwriter can approve or disapprove based on how they feel at that moment. The program is a joke and a waist of time and money.

Patty
March 14, 2014 at 2:10 pm

I had a foreclosure in 2010 due to the economy. In 2012 I was contacted stating the home was foreclosed illegally and now the process had to be started over. Therefore the foreclosure was not completed again until 2012. I am trying to obtain a refinance on my condo land contract balloon. Anyone know of any place I can obtain a mortgage? Everyone says I must wait 3 years. Any advice?