Finally Some Good News For Those Who Have Had A Foreclosure

Logo of the Federal Housing Administration.
Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

Finally, someone in Washington is recognizing that the vast majority of homeowners hit with this housing foreclosure/short sale crisis were the victims in all of this. Yes they defaulted on their payments, but almost always there were extenuating circumstances.  More often than not they were sold a loan that the lender knew was the wrong product but sold it anyway and when anything when financially wrong – health, job, divorce even death – they were in trouble.

I am glad to see that they will allow those that re-establish their credit scores can re-apply for homeownership after 12 months.

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.


Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

For borrowers who went through recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond their control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

Transunion Credit Score
Transunion Credit Score (Photo credit: i am real estate photographer)

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.



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