FHA Shrinks Post-Foreclosure Waiting Periods

In a surprising Mortgagee Letter, FHA announced last week that it will reduce it's two year bankruptcy waiting period and three year foreclosure waiting period to one year for buyers if the cause of the bankruptcy/foreclosure was a job loss.  Stating that buyers shouldn't be penalized for "Economic Events" beyond their control, FHA will consider buyers for financing we can document that:

• certain credit impairments (foreclosures, short sale, bankruptcy, deed-in-lieu, etc.) were the result of a loss of employment or a significant loss of household income beyond the borrower's control;
• the borrower has demonstrated full recovery from the event including at least 12 months of satisfactory credit; and
• the borrower completes housing counseling.

 Calling it the "Back To Work - Extenuating Circumstances" program, this change will allow home purchases now for many individuals who were impacted by the high unemployment rates of the past few years.

There are some additional requirements to be aware of.  The borrower will have to show that:

• they had satisfactory credit before the economic event;
• the derogatory credit occurred after the economic event started;
• they have re-established satisfactory credit for a minimum of 12 months. 

 They also will have to show that the job loss created at least a 20% drop in income for a 6+ month period.  If they can do this, though, and if they meet the rest of the normal FHA loan guidelines, they will be considered for FHA financing. 

THIS IS BIG FOR MICHIANA.  Unemployment hit us hard, and many in our community have been waiting for time to pass to be able to buy a home again.  If it's been at least a year and their payment history has been clean during that time, their wait may be over. 

Spread the news (and my phone number)!  FHA is back in the game.