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FHA reduces waiting period for post-troubled buyers

Thursday, August 29, 2013  
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The Federal Housing Authority has announced it is shortening the mandatory waiting period for homeowners with a short sale, deed-in-lieu, foreclosure, or even bankruptcy in their history to qualify for an FHA loan.

Read the HUD document

Instead of waiting the mandatory three years before qualifying for a new loan, buyers may now prove over the period of one year that they are back on track financially.

The change is part of the FHA's Back to Work - Extenuating Circumstances Program, which allows borrowers who lost their homes due to financial hardships to be eligible for an FHA mortgage much sooner than before. Potential borrowers must prove that they were responsible borrowers who suffered from a financial hardship beyond their control. In addition:

  • Borrowers must must prove that the foreclosure or short sale was caused by what the FHA calls an "economic event"   — a loss of income or employment, or a combination of both, that is beyond the control of the borrower. The economic event must have caused an income reduction of 20 percent or more for at least six months.
  • Borrowers must prove that they have "fully recovered" from the economic event that led to the foreclosure, short sale, or bankruptcy. So if a borrower underwent a foreclosure due to a job loss, the borrower must then prove that he or she is employed and able to afford loan payments once again. Beyond that, the borrower must also prove that his or her credit was satisfactory before the economic event, meaning that his or her credit report was free from late payments or other major derogatory credit issues, and that since the foreclosure, satisfactory credit has been re-established over the past 12 months.

Borrowers must also complete at least one hour of one-on-one housing counseling from a Department of Housing and Urban Development-approved counselor at least 30 days but no more than six months before submitting the application for an FHA loan.

Source: CBS News


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