For homeowners that have gone through the emotional and financial devastation of a foreclosure, there may be a way to buy again, and soon.
Under a new federal rule, FHA is cutting the waiting period to reapply for a loan for persons who lost their job which then resulted in defaulting on their mortgage. They can now qualify for a new loan in as little as 1 year following a foreclosure.
Traditionally, after a foreclosure it could take up to seven years to qualify for a conventional loan again and takes a minimum of three years if applying for a government secured loan following a foreclosure.
The FHA announced the change on August 15, 2013 as, “Back to Work: Extenuating Circumstances.” The waiting period will allow a borrower to qualify for an FHA loan provided the borrower meets a very specific set of criteria. This is an effort to acknowledge the affects of the recession and give people a chance to be a homeowner again.
Brent Wilson, of Comstock Mortgage said; "To get A-paper institutional financing so soon after a foreclosure is unheard-of! It should increase the buyer pool throughout the country."
Brian Sullivan is a spokesman for the U.S. Department of Housing and Urban Development and oversees the FHA added interesting perspective to the table. "We've just been through an economic shock in this country when people lost their jobs through no fault of their own. Now we're in a recovery, and many borrowers have become re-employed and are able to sustain a mortgage again."
The basic criteria set forth that a borrower must meet to qualify for an FHA loan within that abbreviated waiting period are as follows:
<!--[if !supportLists]-->· <!--[endif]-->The loss of home through either foreclosure or short sale must have been due to loss of employment or a significant decrease in household income due to ‘circumstances beyond their control.’
<!--[if !supportLists]-->· <!--[endif]-->Proof that finances have recovered and are sustainable as well as a clean credit record.
<!--[if !supportLists]-->· <!--[endif]-->They must complete an assigned housing counseling program.
Whether or not this can create more buyers, the question remains, is this a good idea?
Some industry professionals are saying that many of these foreclosed homeowners lost their jobs over three years ago and are now in much different position financially
Other industry professionals believe it is highly unlikely for someone who went through a foreclosure just a year earlier have recovered enough to meet the credit and income levels required by the FHA to attain a new loan.
Brent Wilson of Comstock believes the FHA changes are to counteract the effects of their adjustments earlier in 2013; raising its mortgage insurance premiums as well as extended the payments over the life of the loan only made these loans less appealing to the average borrower. With the new change they can attract new borrowers to the table before interest rates get higher.
"I'm a big fan of conventional financing. I advise against FHA as much as I can if people are qualified," said Wilson.
So in summary, , the pool of potential buyers may grow by a little or a lot depending on how many people can meet this stringent requirements.