2013 FHA Bankruptcy Foreclosure Changes
FHA has decided to cut the wait times for clients to get approved after hard times. The Federal Housing Administration that is behind what we call FHA Mortgages has recently changed its policy on how long a potential home buyer must wait after having a Bankruptcy, a Foreclosure, or a Short Sale.
In the past, FHA made a client wait two years after a completion of a bankruptcy and three years after a foreclosure or a short sale in order to get pre-qualified to buy a home. With the most recent changes that took place on Case Numbers that are assigned on or after August 15th, 2013 a home buyer now has to wait one year before being eligible to get approved on a home loan (with compensating factors).
Like in the past, the client must still re-establish credit, have income that will support the value of the home and be able to repay the loan according to standard debt-to-income ratios (ratio based on income vs. mortgage payment / expenses).
This new program is for borrowers who, as a result of economic hardship, had to foreclose on a property (includes short sale) or experience a bankruptcy as a result. FHA stated “their credit histories may not fully reflect their true ability or propensity to repay a mortgage” when discussing an individual(s) who went through a recession-related financial event. Not all borrowers will be eligible for this new waiting program.
Factors that determine eligibility include:
- Those who meet the criteria attached with the restrictions (ability to repay)
- Household income fell by 20% or more for at least six months – based on unemployment or other event
- Must have at least one hour of approved housing counseling
- Must have 12 months of on-time housing/rent payments
For more information, please see the Mortgage Letter 2013-26.
For more information regarding FHA Loans please visit our dedicated FHA mortgages page.
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