March 12, 2015
A reader asks, “Foreclosure exception question. Say a couple was looking to purchase a home, but the husband had a foreclosure which occurred under his name. Would they be able to qualify for a NJ mortgage using divorce as the exception to the three year rule, especially when the divorce decree is dated for one specific year but the foreclosed mortgage loan is from two years after the divorce???”
“I am very curious as to this because to me it wouldn’t make sense that the divorce circumstance for exception would be an option due to the fact that this person took out a mortgage for a property which he was not living in two years after his divorce took place, and placed it solely in his name? I would think there would be no way around this. Not my personal situation, but I am very curious as to know whether or not this couple will actually be able to qualify for a home.”
FHA loan rules address this reader question directly. We find these rules in HUD 4155.1 Chapter Four, Section C, Guidelines For Credit Report Review, which state the following:
“A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years:
–his/her previous principal residence or other real property was foreclosed, or
–he/she gave a deed-in-lieu of foreclosure.”
However the FHA does mention some exceptions, as anticipated in the reader’s question:
“Exception: The lender 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. Divorce is not considered an extenuating circumstance.”
That isn’t quite the final word on the divorce issue, though. Chapter Four Section C adds:
“An exception may, however, be granted where a borrower’s loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.”
Do you have questions about FHA home loans? Ask us in the comments section. Your comment will not appear on the site immediately–it is held for moderation and review prior to posting.
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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