August 23, 2017
Can I get an FHA loan after foreclosure? This is a question that comes up quite often. The answer depends on a variety of factors including the date that the foreclosed property was transferred out of the borrower’s name.
The FHA loan handbook, HUD 4000.1, states that the FHA minimum requirements for getting a new loan following a foreclosure include a waiting period. This period, often called a “seasoning period” or “seasoning requirement” is normally three years.
From HUD 4000.1:
“A Borrower is generally not eligible for a new FHA-insured Mortgage if the Borrower had a foreclosure or a Deed-In-Lieu of foreclosure in the three-year period prior to the date of case number assignment.” The next line in that section is a crucial one:
“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.”
There are many who complain about a financial institution not making such transfers fast enough. This is an unfortunate fact of life and should serve as a warning to those who contemplate foreclosure or deed-in-lieu of foreclosure transactions-the process will take time, and likely take longer than expected.
The three-year waiting period can be frustrating for those who have experienced such long waiting times from the time the foreclosure begins and the time the property is finally transferred out of the borrower’s name.
However, once that has occurred and the borrower begins the mandatory waiting time, it may be good to see if individual circumstances warrant an exception to waiting the full three years.
HUD 4000.1 states of such exceptions:
“The Mortgagee may grant an exception to the three-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.”
HUD 4000.1 clearly states that divorce proceedings are not considered as a justification for an exception. But the FHA loan handbook adds, “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.”
Similarly, FHA loan rules state that a borrower’s failure to sell a home, “due to a job transfer or relocation to another area does not qualify as an extenuating circumstance”.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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