July 14, 2016
A reader asked us recently, “Is it true that I have to wait to refinance my FHA mortgage after having had a foreclosure on another property I own?”
FHA loan rules regarding new loans in the wake of a foreclosure are found in HUD 4000.1, page 247 which states:
“A Borrower is generally not eligible for a new FHA-insured Mortgage if the Borrower had a foreclosure or a DIL of foreclosure in the three-year period prior to the date of case number assignment. 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.”
FHA loan rules do provide certain 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 has a list of areas that do not qualify for the exception mentioned above. For example, changes in marital status don’t qualify.
“Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a Borrowers Mortgage was current at the time of the Borrowers divorce, the ex-spouse received the Property, and the Mortgage was later foreclosed. The inability to sell the Property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.”
FHA borrowers should know that there may also be exceptions in cases where a current FHA mortgage is under review for loss mitigation/foreclosure avoidance procedures. A refinance loan in such cases may be permitted, depending greatly on circumstances and lender policies. This is something borrowers will need to address with the lender on a case-by-case basis.
In any case, proper documentation will be required. For example, if the foreclosure was recent enough that it still hasn’t appeared on an applicant’s credit report, HUD 4000.1 instructs the lender, “If the credit report does not indicate the date of the foreclosure or DIL of foreclosure, the Mortgagee must obtain the Settlement Statement, deed or other legal documents evidencing the date of property transfer.”
“If the foreclosure or DIL of foreclosure was the result of a circumstance beyond the Borrowers control, the Mortgagee must obtain an explanation of the circumstance and document that the circumstance was beyond the Borrowers control.”
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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