Here are the facts about FHA and foreclosures on credit:
If there is a foreclosure on the borrower's credit (any of the borrowers) it must be at least 36 months previous in most cases. There are a very limited number of instances which would allow a foreclosure to have been within less than 36 months (from application date) and the lender may continue to underwrite the application even though it may have not been approved by the Automated Underwriting System (AUS).
Those events are pretty much limited to:
Death or serious illness of a wage earner.
Yes, that's it. HUD 4155.1 REV-5, the guideline from HUD which governs this topic, states:
D. Previous Mortgage Foreclosure. A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.
So, while it is possible to be qualified for an FHA mortgage with a foreclosure on the buyer's or refinancer's credit within the last 36 months the reasons for making that exception are very narrow. Meanwhile please don't try and qualify your clients yourself as there are many , many caveats which may be overlooked even by the most estudious.
As a seasoned loan officer I don't even deny an applicant just because I see a foreclosure without hearing the full story and submitting the information to the AUS. Then again I like my application to close ratio to stay as high as possible within the lending guidelines available to me.
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Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
I see a lot of room to help good people between: "Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area."
It only seems to rule out the so called "strategic default" for 3 years.
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That's a :long: list of life events! Illness or death. Easy list to remember!