February 6, 2013
We get many reader questions in the comments section asking about how long a borrower must wait in order to be eligible for a new FHA home loan following foreclosure. We’ve answered this question many times quoting the rules and regulations found in the FHA loan rulebook, HUD 4155.1.
Now the Federal Housing Commissioner, Carol Galante, has issued some guidance on the subject. While her words are directed toward “stakeholders” and not necessarily consumers in particular, she has an important message that borrowers need to be aware of when considering applying for an FHA loan in the wake of foreclosure proceedings.
Galante says, “Recently, we have seen a proliferation of web-based and print advertising regarding the sup- posed ease of obtaining an FHA-insured loan following a foreclosure. Often, this advertising implies that almost any borrower can acquire a new FHA-insured mortgage three years after completing a foreclosure, without meeting any particular requirements or qualifications. But as you, our partners, are well aware, this simply isn’t true.
While it is indeed accurate that FHA policy permits homeowners who experienced a foreclosure to obtain FHA financing three years after their foreclosure, they may only do so in accordance with FHA’s standard origination and underwriting guidelines. Therefore, these borrowers must have re-established a satisfactory credit score and meet our customary loan underwriting requirements. Simply put, there is no guarantee that a borrower with a prior foreclosure will qualify for FHA-insured financing three years after a foreclosure.”
That’s an important thing to remember when trying to recover from a foreclosure action. The borrower’s credit activity in the months and years following are VERY important. Carol Galante also writes, “I want to make clear that we take seriously the issue of false or misleading advertising regarding FHA-insured loans. Advertisements that imply that little or no qualification criteria are necessary to obtain an FHA loan are unacceptable. And FHA will not hesitate to take action within its authority to enforce its requirements related to lender advertising, including sanctions by HUD’s Mortgagee Review Board and/or referral to the HUD Inspector General or the Consumer Financial Protection Bureau (CFPB).”
That does put the burden on lenders to be more representative of FHA loan policies in their advertising, but as mentioned above, the borrower plays his or her own role–making sure you have reestablished good credit and a track record of reliable payments can go a long way toward helping you qualify for a home loan once more after waiting out the three-year seasoning period following foreclosure.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
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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