March 27, 2024
If you experienced trouble with a past home loan and made arrangements to surrender the deed of the home in lieu of foreclosure, it is easy to understand why you might assume you wouldn’t be eligible for another home loan. There is GOOD NEWS on this front, however.
This assumption is not true. You CAN become eligible for a new FHA mortgage once you meet certain requirements.
What do FHA loan rules in HUD 4000.1 say about getting a new FHA mortgage following a deed-in-lieu of foreclosure?
We get many questions about issues like these. One variation on a common FHA home loan question goes like this;
“I completed a deed-in-lieu of foreclosure a few months ago. According to the government guidelines, how long do I have to wait before I can refinance or purchase a home?”
The rules that govern the FHA deed-in-lieu of foreclosure policy are found in HUD 4000.1. Those rules include the following:
“A Borrower is generally not eligible for a new FHA-insured Mortgage if the Borrower had a foreclosure or a DIL of foreclosure” within the three years before the case number assignment.
The most obvious question to ask at this stage is when the clock starts ticking on that three-year waiting period.
According to HUD, “This three-year period begins on the date of the DIL or the date that the Borrower transferred ownership of the Property to the foreclosing Entity/designee.”
As with most FHA loan rules, there may be exceptions. One such exception?
Your FHA lender is permitted to grant an exception to the waiting period following a deed-in-lieu “…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.”
There are limits to what may be considered extenuating circumstances.
Divorce is one of those, but FHA loan rules note, “An exception may, however, be granted where a Borrower’s Mortgage was current at the time of the Borrower’s divorce, the ex-spouse received the Property, and the Mortgage was later foreclosed.”
HUD 4000.1 adds, “The inability to sell the Property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.”
Whenever you need an exception to FHA loan policy, such as those mentioned here, your loan servicer will likely require some documentation to support the need for such exceptions. Ask the lender about such documentation if you need an exception.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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