If you've experienced any of the following"Economic Events", you may be eligable:
Chapter 7 bankruptcy
Chapter 13 bankruptcy
FHA will now allow a borrower who has suffered a Economic Event i.e. foreclosure, short sale, deed in lieu of foreclosure, bankruptcy, etc to be considered for an FHA home purchase loan in as little as 12 months after the event. On 8/15/13 the US Department Of Housing And Urban Development (HUD) published Mortgage Letter 2013-26 (click document number 13-26 for the letter in .pdf).
This letter expands HUD's "underwriting standard and criteria for evaluating borrowers who have experienced an Economic Event" as defined in the Mortgage Letter. The expanded guidelines referred to as "Back to Work - Extenuating Circumstances" are applicable to all purchase money mortgages in all FHA programs with the exception of Home Equity Conversion Mortgages.
This is amazing news. I believe these Re-Emerging Buyers (Shortsale or foreclosure in the last 5 years) makes up a large demand for housing. This FHA guideline expansion will be a welcome conduit to allow this large group of to be homeowners to re-enter the real estate market. This will also highlight the trend of loosening guidelines.
What’s the Catch!!!
Prospective borrowers must document an Economic Event and:
*Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income (must be 20% or more for at least 6 months) beyond the borrowers control.
*The borrower has demonstrated full recovery from the event (have clean credit for a full, consecutive, 12 month period); and,
*The borrower has completed housing counseling
Satisfactory Credit: Requirements
*the borrowers credit history is clear of late housing or installment debt payments, and major derogatory credit issues on revolving accounts;
*any open mortgage is currant and shows twelve (12) months satisfactory payment history. Mortgages may have been brought current through loan modification, which may be “temporary” or “permanent” so long as all payments have been documented as being received in accordance with the modification agreement(s); and
*the borrower meets the requirements of this ML (mortgage letter)
When underwriters are analyzing the credit they must determine whether associated late payment, credit deficiencies or other credit problems were the result of:
*an Economic Event, or
*an inability to manage debt or
*a general disregard for managing financial obligations
*the housing education can be provided by HUD-approved housing counseling agencies, state housing finance agencies, approved intermediaries or their sub-grantees, or through an on-line course, and
*be completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application to a lender.
*the borrower must obtain specific disclosures as well as a specific letter of completion. Make sure you are obtaining this housing counseling through a reputable source and read the Mortgage Letter 2013-26 to make sure you obtain the right disclosures and the correct letter of completion.