Qualifying For FHA Loan After Foreclosure

Qualifying for FHA loan after foreclosure is now possible for homebuyers who meet the mandatory waiting period after foreclosure. Fannie Mae and Freddie Mac are the two mortgage giants that are in charge of setting standards and lending guidelines on Conventional loans. Fannie Mae and Freddie Mac categorize foreclosure and deed in lieu of foreclosure into two separate categories and the waiting period differs between the two.

The mandatory waiting period to qualify for a conventional loan after the recorded date of foreclosure is seven years. The mandatory waiting period to qualify for a conventional loan after the recorded date of a deed in lieu of foreclosure is four years. In the following paragraphs, we will cover qualifying for an FHA loan after foreclosure.

Foreclosure Versus Deed-in-Lieu of Foreclosure

However, HUD, the parent of FHA, classifies foreclosures and deeds-in-lieu of foreclosures into the same category: The mandatory waiting period in qualifying for FHA loan after foreclosure is three years from the recorded date of the foreclosure. The waiting period start date is reflected by the date of the sheriff’s sale or when the deed of the property was transferred out of the homeowner’s name. Needs to be transferred into the name of the lender.

The housing event needs to be recorded on public records. The mandatory waiting period in qualifying for an FHA loan after a deed-in-lieu of foreclosure is the same as the waiting period after foreclosure, which is three years.

Qualifying For FHA Loan After Multiple Foreclosures

Many folks invest in real estate prior to the 2008 real estate and mortgage meltdown. Real estate values were escalating and appreciating double digits year after year. The real estate market was hot and lending was easy. No doc loans and subprime mortgages were the names of the game and it was very difficult not to make money investing in real estate. Then the big real estate crash came like a major hurricane in 2008.   Click here to Qualify for FHA Loan After Multiple Foreclosures

Mass Foreclosure Rate After 2008 Financial Crisis

Hundreds of thousands, if not millions, of real estate investors, not just lost their real estate investment portfolio but also ended up losing their personal homes. There are so many folks who have multiple foreclosures. I have many borrowers who are looking to become homeowners again but have multiple foreclosures.

Homebuyers can qualify for FHA Loans after multiple foreclosures. How this works is the waiting period applies to all foreclosures. Whether it is one property or ten properties that a person had in the past, it does not matter. FHA will go off the last foreclosure that was recorded.

Case Scenario on Waiting Period Start Date

For example, here is a case scenario where the borrower had three properties, and here are when these properties foreclosed:

1. Property A foreclosure on 2/13/2010
2. Property B foreclosure on 2/14/2011
3. Property C foreclosure on 2/15/2013

The above borrower had three foreclosures and needs to qualify for an FHA loan. Qualifying for FHA loan after foreclosure requires a mandatory waiting period of three years from the recorded date of foreclosure. The date needs to be reflected and recorded on public records. With the above example, the latest foreclosure recorded was with Property C which the recorded date was 2/15/2013. Property A and Property B already met the 3-year mandatory waiting period. Property C, the waiting period is over on 2/15/2016.  This person will qualify for an FHA loan on or after 2/15/2016.

Qualifying For FHA Loan After Foreclosure With Late Payments

Lenders do not want to see any late payments by borrowers after foreclosure or short sale. Late payments after foreclosure or short sale is not a deal killer but most lenders will not approve borrowers on FHA Loan After Foreclosure with late payments. I can help homebuyers who had late payments after foreclosure. One of two late payments is not an issue.

However, with a series of late payments after foreclosure, borrowers may need to go to a lender with no overlays like Gustan Cho Associates. Homebuyers with late payments after foreclosure, and/or short sale please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates will be able to help in getting an FHA loan with no overlays.  

Qualifying for FHA Loan After Foreclosure and Bankruptcy Waiting Period Guidelines

Homebuyers can qualify for FHA loan after bankruptcy and foreclosure after meeting the mandatory waiting period. All government loans and conventional loan programs have a minimum waiting period after bankruptcy and foreclosure. For consumers who have filed for bankruptcy or had a foreclosure, the chances are that their credit scores have suffered.

A bankruptcy or foreclosure can plummet someone’s credit score by more than 150 points. The good news with filing bankruptcy, consumers can have a fresh financial start in life and can start rebuilding their credit.

Same as with a  foreclosure. Lenders do not go after the deficiency on a foreclosure on owner occupant residences. Consumers can become homeowners again after bankruptcy and foreclosure. Homebuyers can qualify for FHA loan after bankruptcy and foreclosure by meeting the HUD Guidelines on the waiting period after bankruptcy and foreclosure. In the following paragraphs, we will cover and discuss FHA guidelines after Bankruptcy and Foreclosure.  Qualify for FHA Loan After Foreclosure and Bankruptcy Waiting Period Guidelines

Credit After Bankruptcy and Foreclosure

A person’s credit score will automatically improve as time passes after filing bankruptcy even if they do not establish new credit. Bankruptcy and foreclosure can plummet credit scores by 150 points or more. This drop-in credit score is not permanent. Scores will slowly increase as bankruptcy and foreclosure age. This holds true even if consumers do nothing about improving their credit scores. Many who file for bankruptcy or go through a foreclosure does not want to do anything with getting new credit.

Importance of Re-Establishing Credit After Bankruptcy and Foreclosure

However, not getting new credit after bankruptcy or foreclosure can affect the chances of qualifying for an FHA loan after bankruptcy and foreclosure. Lenders want to see re-established credit after bankruptcy and foreclosure by borrowers. Easiest and fastest way of rebuilding credit to qualify for an FHA loan after bankruptcy and foreclosure are to get three secured credit cards with $500 credit limits.

Any credit limit under $500 on secured credit cards will have very little effect on improving credit scores. Most lenders will not approve borrowers for FHA loans after bankruptcy and foreclosure if they had any late payments after bankruptcy, deed in lieu of foreclosure, foreclosure, short sale.

Qualifying For FHA Loan After Foreclosure and Bankruptcy

Here are HUD Guidelines on qualifying for FHA loans after foreclosure and bankruptcy:

• There is a two year waiting period after the Chapter 7 Bankruptcy discharged date to qualify for FHA loans
• Homebuyers one year into a Chapter 13 Bankruptcy repayment plan can qualify for FHA loans
• This holds true as long as they made 12 timely payments to their creditors and get approval from Chapter 13 bankruptcy trustee
• There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for FHA loans
• There is no waiting period to qualify for an FHA loan after a Chapter 13 Bankruptcy dismissal date
• There is a three-year waiting period to qualify for FHA loans after the recorded date of foreclosure, deed-in-lieu of foreclosure, short sale.

There is no waiting period to qualify for FHA loan with timeshare foreclosure. Timeshares are considered consumer loans under the eyes of HUD. Borrowers who had a mortgage part of Chapter 7 bankruptcy and the mortgage has been discharged in the Chapter 7 Bankruptcy, there is a three-year period after the deed of transfer has taken place after the Chapter 7 Bankruptcy to qualify for FHA loans.

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.

Fannie Mae Guidelines on Foreclosures

With Fannie Mae and Freddie Mac, borrowers who had mortgage part of Chapter 7 Bankruptcy can qualify four years from the discharged date of the Chapter 7 Bankruptcy. The transfer of deed date does not matter and can happen after the discharged date. As long as the deed transfer has taken place, borrowers can qualify for Conventional Loans four years from the discharged date of the Chapter 7 Bankruptcy.

Homebuyers who need to qualify for FHA Loan After Bankruptcy And Foreclosure can contact us at Gustan Cho Associates at 800-900-8569 text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Mortgage Options For Homebuyers on Purchasing a Home After Bankruptcy and Foreclosure

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 or foreclosure
• Importance of reestablishing credit after bankruptcy and/or a housing event

Homebuyers can qualify for a mortgage after bankruptcy or a housing event after meeting the waiting period. It is very important not to have any late payments after bankruptcy or a foreclosure. Borrower should have re-established credit.  Click here to apply for mortgage after bankruptcy and foreclosure

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.

The Short-Lived FHA Back to Work No Longer Available

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.

Loss of Employment Considered Extenuating Circumstances

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 HUD 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 family. There is a three-year waiting period after the recorded date of a foreclosure 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.

Qualifying for FHA Loan After Foreclosure 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.

Qualifying for FHA Loan After Foreclosure With Low Payment Shock Considered Compensating 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.  Click here to Qualify for FHA Loan After Foreclosure With Low Payment Stock 

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. 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.

FAQs: Qualifying For FHA Loan After Foreclosure

• 1. Can I get an FHA loan after foreclosure? An FHA loan is possible if it has been foreclosed upon. The borrower must wait three years from the date of recordation of a foreclosure.

• 2. What is the difference between foreclosure and deed-in-lieu of foreclosure? The process of foreclosure takes place when a property is taken by a lender due to non-payment by the homeowner. On the other hand, a deed-in-lieu of foreclosure occurs when homeowners give up their homes willingly to lenders to avoid being foreclosed upon. After three years, an individual may qualify for an FHA loan.

• 3. How long do I have to wait to get a conventional loan after foreclosure? A period of seven years is needed in order to obtain a conventional mortgage after having undergone bankruptcy proceedings.

• 4. What if I had multiple foreclosures? The waiting period applies for your last most recent foreclosure on the credit report, if you have more than one foreclosures, then it starts from the date in which last recorded occurred as per three year waiting period for getting FHA loans.

• 5. Can I still qualify for an FHA loan if I had late payments after foreclosure? Late payments that occur after bankruptcy can create difficulties when seeking approval for FHA loans; nevertheless, there are some lenders like Gustan Cho Associates who can assist you even if there were one or two late payments.

• 6. What are the FHA loan waiting period guidelines after bankruptcy? In case of bankruptcy discharge under Chapter 7, wait two years before applying for an FHA mortgage and in case of Chapter 13, with trustee’s permission you may apply just within 12 months subject to timely payment during this time lag although it doesn’t require any waiting period but manually underwritten loans only will be approved by F.H.A

• 7. How does foreclosure affect my credit score? Foreclosure could reduce your FICO score by about 150 points or even greater than; however, its impact is not permanent hence it will gradually increase back over time.

• 8. Why is re-establishing credit important after foreclosure or bankruptcy? A history of re-established credit and the ability to develop new credit, which is reflected from your credit report are necessary for you to qualify for an FHA loan thus this enhances your chances of getting approved.

• 9. How can I rebuild my credit after foreclosure or bankruptcy? You could therefore think about acquiring three unsecured payment cards having at least $500 limits each in order to boost your score; ensure that you maintain low balances and always make timely payments.

• 10. What is a HUD-approved housing counseling course, and do I need it? HUD offers home-ownership education through its approved housing counseling programs, some lenders may require you complete this course in order to be eligible for other programs.

• 11. Can I qualify for an FHA loan with a timeshare foreclosure? When it comes to timeshare foreclosures, they are considered consumer loans. Additionally, there is no waiting period to qualify for an FHA loan after a timeshare foreclosure.

• 12. What is the role of compensating factors when it comes to manual underwriting of FHA loans? Some examples are stable employment, low payment shock and good rental history that can be helpful in qualifying for an FHA loan using manual underwriting.

• 13. How important is rental verification for FHA loans? Rental verification is important because it demonstrates your ability to handle housing payments which usually occurs through 12 months of cancelled checks or a letter from property management.

For more information or require assistance in qualifying for an FHA home loan after foreclosure, please call us at Gustan Cho Associates on 800-900-8569 or email alex@gustancho.com.

This blog about Qualifying For FHA Loan After Foreclosure was updated on June 26th, 2024.