by Sr. Loan Officer Ron Bennett (NMLS 57792)
The Federal Housing Administration (FHA) has made some changes to FHA financing that you should know about. These updates might mean you could buy a home again just one year after a foreclosure, bankruptcy, short sale, or other economic event.
The last recession had a tough effect on home owners who lost their jobs or had a reduction in income which led to difficulties in paying monthly mortgage payments. Thus, people lost their homes to short sales, deeds-in-lieu of foreclosure, or regular foreclosures.
In some cases some of these borrowers ended up filing for bankruptcy. All of these difficulties affected their credit negatively.
FHA is continuing to look at those borrowers who have experienced these periods of financial hardship due to circumstances beyond their control. The “Back to Work” program helps buyers get back into the market faster than in the past.
Prior to this new program, if you had a bankruptcy, you had to wait 2 years before you could purchase a home. If you had a foreclosure or a short sale, it was 3 years. Under the new “Back to Work” program, the waiting period has been reduced to one year.
So what are the requirements to qualify? First, you need to document that the that the delinquencies or derogatory credit are the results of an “economic event”: an occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both that causes a reduction in your household income of 20% or more for a period of at least 6 months.
Second, your credit report must show that you have re-established satisfactory credit for a period of 12 months from the bankruptcy discharge or foreclosure being finalized. If you meet these requirements, this may be the program for you.
If you lost your home and you ended up renting a home, you must have paid your rent payments on time. You cannot have collection accounts or court records (even due to identity theft). But there is an exception for medical collections.
You also must receive homeownership counseling from a HUD-approved counselor. To get a list of counselors or to see if you qualify for this program, please contact me for assistance.
Ron Bennett (NMLS 57792, MLO-57792) is a Sr. Mortgage Advisor in Washington State. Contact Ron at 253.561.9704 and visit him on Facebook.