FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure
The FHA is reducing the amount of time a borrower must wait in order to receive an FHA-insured mortgage, according to a new mortgagee letter from the Dept. of Housing and Urban Development. Currently set at three years, the FHA now allows eligible borrowers to receive an FHA-insured loan in as little as one year. Eligible borrowers include those who experienced unemployment or other severe reduction in income and were unable to make their monthly payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure.
FHA is allowing for the consideration of borrowers who have experienced an economic event and can document that:
- Certain credit impairments were the result of a loss of employment or a significant loss of Household Income beyond the borrower’s control;
- The borrower has demonstrated full recovery from the event; and,
- The borrower has completed housing counseling.
The guidance in the mortgagee letter is applicable to purchase money mortgages in all FHA programs, with the exception of Home Equity Conversion Mortgages.
Borrowers who may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for an FHA-insured mortgage if the borrower:
- Can document that the delinquencies and/or indications of derogatory credit are the result of an economic event as defined in the mortgagee letter,
- Has completed satisfactory housing counseling, as described in this ML, and
- Meets all other HUD requirements.