September 4, 2013
A reader asks, “I heard it is no longer required to wait three (3) years after a foreclosure before getting an FHA loan, true? Three years will be October 2014 but I’d rather not wait that long, we’d like to get a house July 2014. I am still in Chapter 13 bankruptcy scheduled to be over December 2014.”
“I have been on my job two years, make plenty of money, and have been on time with my chapter 13 payments. I have a credit score of 650 and building. I’ll have about 10% down. Do you think it would be possible to get an FHA loan in July 2014 (3 months before the 3 year mark)?”
In the past several weeks, we’ve written about the new FHA program called Back To Work, which provides some credit leniency for qualified borrowers who have had financial difficulty in the past that may not reflect their actual ability to afford and pay an FHA mortgage in the present. Let’s review what the FHA and HUD have published in Mortgagee Letter 13-26 about the Back To Work program:
“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre- foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
“To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
- certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
- the borrower has demonstrated full recovery from the event; and,
- the borrower has completed housing counseling.”
This added consideration is based on the borrower’s individual circumstance, so the answer to the reader question is basically, “It depends”. The reader should contact a lender, describe his or her circumstances, and ask the lender whether an FHA mortgage is possible using the new Back to Work standards which do include a housing counseling requirement.
It should be stressed that the Back To Work consideration is NOT applicable to ALL borrowers. Some borrowers may not qualify if their financial issues do not meet FHA criteria for Back to Work, but it’s a bad idea to assume you aren’t eligible–speak to a loan officer to find out if you qualify for Back to Work consideration and go from there. It’s the best way to learn what your options may be.
Do you have questions about FHA home 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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