Over the last few years, the Federal Housing Administration has expanded their guidelines to stay up to date on the economic challenges that borrowers have faced during the housing crisis and the Great Recession. Unfortunately many people have suffered credit obstacles because of delinquency, foreclosure or short-sale. Since 1934, FHA has insured mortgages in an effort to make the market more flexible for banks and lenders to originate FHA loans with lower down-payment requirements. FHA is also well-known for supplying loan programs with flexible income requirements. A lot of times, consumers with low fico scores will utilize FHA programs for home financing for bad credit.
- Previous mortgage foreclosure
- Borrowers are generally not eligible for a new FHA-insured mortgage if, during the previous three years:
- Previous principal home was foreclosed, or they gave a deed-in-lieu of foreclosure.
FHA Exception: The lender may extend an exception to the 3-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.
Borrower current at the time of short sale
- Mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale
- Borrower in default at the time of short sale
FHA Exception: A lender may make an exception to this rule for a borrower in default on a mortgage at the time of the short sale if the default was due to circumstances beyond the borrower’s control, such as the death of a primary wage earner or long-term uninsured illness, and a review of the credit report indicates satisfactory credit before the circumstances beyond the borrower’s control that caused the default.
Getting a FHA loan after a short sale is certainly attainable for applicants that meet the revised requirements. Interest rates on government home loans have been at record levels for most of 2012. FHA refinance rates have also been incredibly affordable. The streamline product has disregarded most appraisal requirements so many underwater homeowners have been able to reset their loan with a lower interest rate. Most industry analysts believe that the rates will rise in 2013, so we suggest getting approved today while FHA loan rates are so affordable.
On a short-sale, long-term job loss or layoff would be considered an exception considered to be circumstances beyond the borrower’s control. For details on short sales, go to Loan Advice for People that Had a Short Sale.