FHA mortgages are very attractive to many first-time homebuyers, as well as buyers who wish to put down a lower down payment. Only 3.5% of the total purchase price is required as a down payment with an FHA mortgage.
Until recently, the Federal Housing Administration (FHA) wasn’t allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to re-enter the market and receive an FHA loan for at least 3 years after such an event. But it has just been announced that the FHA guidelines have been further relaxed and now borrowers who’ve been foreclosed on may be able to buy again using an FHA mortgage in as little as 12 months, according to a mortgage letter released Friday.
Borrowers who went through a recession-related financial event will be given some relief as the 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.
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 rent or on a credit account.
The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.