March 23, 2017
How long does a borrower have to wait to apply for a new FHA mortgage following a deed-in-lieu? A reader asks us a question along those lines this week:
“We went Chapter 13 about 8 years ago and paid the CH 13 off through the repayment plan. We also relinquished our home with a DIL of foreclosure. The house sat on the market for 7 years and finally sold last July. Three different banks have told us that we are not eligible yet to buy another home because we have to wait 2-3 years (depending on who we asked) after the home was transferred out of our name to the new owner. Please help!! How many years do we have to wait? Is it 2 or 3? Thank you!”
FHA loan rules state:
“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.”
However, some exceptions may be permitted under FHA loan rules as the same section in HUD 4000.1 explains. The loan officer can make an exception to the three year requirement if the circumstances of the deed-in-lieu meet FHA loan standards:
“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.”
Some types of situations do not count-the lender cannot use a borrower’s divorce, for example, as a reason to provide an exception. “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.”
The key to all of these issues is to remember that FHA loan rules may not be the only standards applied in these cases-lender rules may also apply. One financial institution’s standards may not apply somewhere else, and state law may also have a say. Each case will be handled on an individual basis depending on circumstances.
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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