FHA Guidelines After Bankruptcy And Foreclosure For Borrowers
This article covers FHA Guidelines After Bankruptcy And Foreclosure For Borrowers:
HUD has the shortest waiting period after bankruptcy and foreclosure for mortgage borrowers. We will cover the following topics in this article:
- The launch and failure of the FHA Back to Work Program
- Eligibility requirements to qualify for an FHA loan after bankruptcy and/or foreclosure
- Importance of reestablishing credit after bankruptcy and/or a housing event
Homebuyers can qualify for a mortgage after bankruptcy and/or a housing event after meeting the waiting period. It is very important not to have any late payments after bankruptcy and/or a foreclosure. Borrower should have re-established credit.
The Failure of the short-lived FHA Back to Work Mortgage Program
HUD has launched FHA Back to Work Extenuating Circumstances due to an economic event and it turned out to be a flop where very few if any, lenders closed on any of these loans.
On August 15, 2013, HUD, the parent to the Federal Housing Administration ( FHA ), has launched the FHA Back to Work Extenuating Circumstances due to an economic event. This loan program shortened the waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale to a one-year waiting period.
Since the program has launched, thousands of homebuyers who qualified took advantage of the FHA Back to Work Mortgage. They were under the belief and dream of becoming homeowners without waiting the two-year waiting period after bankruptcy discharge. The three years waiting period after foreclosure, deed in lieu of foreclosure, and the short sale was shortened to one year.
Out of the countless borrowers who applied, only a minute fraction got a clear to close and closed on their FHA Loan with the Back To Work Program. FHA has announced that the FHA Back to Work Extenuating Circumstances due to an economic event will get discontinued in 2015.
Those who met FHA Guidelines After Bankruptcy And Foreclosure never got a chance to get approved and close on their FHA Loans with the Back To Work.
Qualifying for FHA Loans After Bankruptcy and Foreclosure
Not everyone qualified for the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program.
To be eligible for the FHA Back to Work Mortgage, the mortgage loan applicant needs to have been involuntarily terminated by their previous employer. The employer needs to have closed its doors or shut its branch operations.
Due to the involuntary unemployment, borrowers were forced to either file bankruptcy and/or go through a foreclosure, deed in lieu of foreclosure, or short sale due. Due to the housing event and/or bankruptcy, borrowers had to sustain a 20% reduction of their household income for at least six months.
A 20% reduction of household income is one of the criteria. Unemployment income does not count as income. Unemployment income will not apply in calculating the 20% reduction of household income.
The Back To Work Mortgage turned out to be a complete disaster where most lenders ended up discontinuing the program altogether before the program expired.
HUD FHA Guidelines After Bankruptcy And Foreclosure
HUD has very lenient requirements for homebuyers to qualify for FHA Loans after bankruptcy and foreclosure. Here are the updated FHA Guidelines After Bankruptcy And Foreclosure:
2 year waiting period after Chapter 7 Bankruptcy discharged date. Borrowers in a Chapter 13 Bankruptcy Repayment Plan can qualify for an FHA Loan after one year of filing a Chapter 13 Bankruptcy.
Borrowers who just had a Chapter 13 Bankruptcy discharge do not have any waiting period after the discharge of their Chapter 13 Bankruptcy discharged date. Needs to be manual underwriting.
All manual underwriting require verification of rent. However, Gustan Cho Associates will exempt the VOR for borrowers who have been living rent free with familhy. There is a three-year waiting period after the recorded date of a foreclosure and/or deed in lieu of foreclosure or sheriff’s sale date to qualify for FHA Loans.
There is a three-year waiting period after the short sale date on a short sale.
Re-Establishing Credit After Bankruptcy And Foreclosure
Once the homebuyers have met the waiting period and re-established their credit, they are eligible to qualify for an FHA loan.
Late payments after bankruptcy, foreclosure, and a short sale is normally not acceptable But is not a deal killer.
Full-time and stable employment is a must. The likelihood to continue for the next three years assures lenders the borrower’s ability to repay. Mortgage underwriters wants to see that borrowers have re-established credit.
Other Qualification Requirements
Borrowers who are under a Chapter 13 Bankruptcy Repayment Plan or have recently had a Chapter 13 Bankruptcy discharge can qualify for FHA Loans but will need to be manual underwriting.
With manual underwriting, mortgage underwriters like to see compensating factors. One such compensating factor that most manual underwriting mortgage lenders require is a verification of rent, also known as VOR. Rental Verification is extremely important because it shows rental shock is not a factor.
Payment shock is the difference between the new mortgage payment versus the rental payment. For example, if a renter was paying $1,000 per month for rent and the new mortgage payment is $1,050 the rental shock is 5% which is not bad.
However, if the renter cannot prove verification of rent because he or she has been paying his or her landlord their rent payments with cash, then the current payment shock will go from $0 dollars a month to $1,050 per month.
Rental verification will only count if the renter has 12 months of canceled checks paid to the landlord. If renting from a registered property management company, a letter from the property management manager will be sufficient.
HUD Approved Housing Course
There are instances where lenders may require borrowers to complete a one-hour HUD-approved housing counseling course. HUD-housing courses are taught by a HUD-approved counselor. Recipients completing and mastering the course earns a certificate of completion.
Many first-time down payment assistance programs will require a HUD Approved Housing Course Certificate.
Lenders With No Overlays
Gustan Cho Associates only follows FHA Guidelines After Bankruptcy And Foreclosure. W do not have additional overlays. Gustan Cho Associates Mortgage Group closes most home loans in 21 days or less.