Lender Programs After Bankruptcy and Foreclosure
By: Lance T. Denha, Esq.
The Federal Housing Administration (FHA), which is a part of the U.S. Department of Housing and Urban Development (HUD), insures lenders against some of the risk involved in lending to borrowers who often don’t qualify for conventional home loans, including first-time homebuyers or those with low or moderate incomes. The loan itself comes from your lender, not the FHA.
Previously, borrowers were generally ineligible for a new FHA loan until three years after a foreclosure, short sale, or deed in lieu of foreclosure and two years after a Chapter 7 bankruptcy, though the death of a spouse or a medical emergency could cut the wait time to one year. The FHA wants to make it easier for those people to get a new home loan with FHA backing since their credit histories may not fully reflect their true ability to repay a mortgage.
As a result, the FHA changed its mortgage rules so that some borrowers can qualify for a new FHA loan just one year after a foreclosure, short sale, deed in lieu of foreclosure, or bankruptcy as part of its new Back to Work – Extenuating Circumstances program.
The FHA reduced the waiting period to one year if you can show you went through a foreclosure, short sale, bankruptcy, or deed in lieu of foreclosure due to an external economic event, like a loss of income or employment (or a combination of both) through no fault of your own.
If you’ve experienced any of the following financial difficulties, you may be program-eligible:
- Pre-foreclosure sales
- Short sales
- Deed-in-lieu
- Foreclosure
- Chapter 7 bankruptcy
- Chapter 13 bankruptcy
- Loan modification
- Forbearance agreements
The FHA realizes that, sometimes, credit events may be beyond your control, and that credit histories don’t always reflect a person’s true ability or willingness to pay on a mortgage.
To qualify for the program, mortgage borrowers must (1) meet standard FHA loan requirements, (2) document prior financial hardship, (3) re-establish a responsible credit history, and (4) attend a brief homeowner counseling program If you meet these requirements, you may qualify for an FHA loan, which allows you to put down as little as 3.5% on a mortgage. This program is set to expire in September, 2016.
Bankruptcy and foreclosure are major obstacles to overcome, but with time and diligent work, you may be able to get another mortgage and a fresh start sooner than you think.
