Did You Know? FHA Standards Update…
Memo distribution by Brian Smith, Movement Mortgage (082413)
FHA announced in a letter to mortgagees that it will reduce the time buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage. The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale.
The agency has now reduced the waiting period to ONE YEAR. “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” FHA Commissioner Carol Galante said in the letter. But, fulfilling the new, more lenient waiting period won’t automatically qualify borrowers for an FHA-backed loan.
Borrowers will have to show that they experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months. They must also demonstrate that they have fully recovered from the event (is their credit ok, employment stable again?), and agree to complete housing counseling prior to closing (an easy 1 hour online course).
For example, say an individual lost his job during the recession, couldn’t pay the mortgage and eventually was foreclosed upon. Under standard FHA waiting times, that person might not be eligible for a new loan for up to three years. However, if the applicant qualifies as having experienced “an economic event” — defined in the new guidance as “any occurrence beyond the borrower’s control that results in loss of employment, loss of income or both” that causes a 20 percent decline in household income for at least six months — the applicant will now be allowed to qualify to obtain a new FHA-insured mortgage in as little as one year instead of three.
See here the mortgagee letter from HUD and what their requirements are at FHA Standards Update 081613.
Source: Brian Smith, Movement Mortgage; | Blog, In The News, distribution provided by Kenneth Bargers and Bargers Solutions, member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee