FHA Guidelines After Bankruptcy And Foreclosure
This BLOG On FHA Guidelines After Bankruptcy And Foreclosure Was Written By Gustan Cho NMLS 873293
It has been slightly over a year since HUD has launched the 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, the United States Department of Housing and Urban Development, the parent to the Federal Housing Administration ( FHA ), has launched the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program which shortens 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 home buyers who qualified took advantage of the FHA Back to Work Mortgage and became homeowners without waiting the two year waiting period after bankruptcy discharge and the three years waiting period after foreclosure, deed in lieu of foreclosure, and short sale.
- Out of the countless of 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 continue for 2015 to qualified mortgage loan applicants but 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 will qualify 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 in 2015, the mortgage loan applicant needs to have been involuntarily terminated by his or her previous employer or the previous employer needs to have closed its doors or shut their branch operations which have caused the involuntarily unemployment of the FHA Back to Work Mortgage loan applicant.
- Due to the involuntary unemployment, the FHA Back to Work Mortgage applicant was forced to either file bankruptcy and/or go through a foreclosure, deed in lieu of foreclosure, or short sale due to a 20% of their household income for at least six months.
- A 20% reduction of household income is calculated and required.
- Unemployment income does not count as income and will not apply in calculating the 20% reduction of household income.
HUD has very lenient requirements for home buyers to qualify for FHA Loans after bankruptcy and foreclosure. Here are the updated 2017 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 a FHA Loan after one year of filing a Chapter 13 Bankruptcy.
- Borrowers who just had a Chapter 13 Bankruptcy discharge does not have any waiting period after the discharge of their Chapter 13 Bankruptcy discharged date but Verification Of Rent is required.
- 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 a FHA Loan.
- There is a three year waiting period after the short sale date on a short sale to qualify for a FHA Loan.
Re-Establishing Credit After Bankruptcy And Foreclosure
After the bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, borrowers applying for a FHA Loan needs to show that he or she is now fully employed and is back on their feet.
- Late payments after bankruptcy, foreclosure, and short sale is normally not acceptable but is not a deal killer.
- Full time employment and likelihood of employment of the next three years is required.
- FHA wants to see that borrowers has 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 factors that most manual underwriting mortgage lenders require is verification of rent, also known as VOR.
- Rental Verification is extremely important because it shows rental shock is not a factor.
- Payment shock is when a renter pays a certain amount for their rent and the new mortgage payment is figured into it.
- For example, if a renter was paying $1,000 per month for rent and the new mortgage payment is $1,200, the rental shock is 20% 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 $1,200 per month.
- Rental verification will only count if you have 12 months of canceled checks paid to your landlord if you have a private landlord.
- If you are 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 taught by a HUD certified counselor and receive a certificate of completion that is signed and dated by the HUD approved housing counselor. Once you get the signed and dated HUD approved housing certificate, you need to wait 30 days to be able to formally apply for the FHA insured mortgage loan.
Lenders With No Overlays
The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 is a nationally recognized Fannie, Freddie, Ginnie Direct Lender with no overlays on FHA Loans. CrossCountry Mortgage Inc. NMLS 3029 only follow FHA Guidelines After Bankruptcy And Foreclosure and does not have additional overlays. The Gustan Cho Team at CrossCountry Mortgage Inc. NMLS 3029 closes most home loans in 21 days or less.