Listen up, homebuyers! As of August 15, the Federal Housing Administration (FHA) has waived its 3-year foreclosure and 2-year bankruptcy waiting periods. This is great news for hopeful homebuyers who were previously prevented from buying a new home by the FHA foreclosure waiting period. Before this week, a variety of problems could have prevented you from receiving a new FHA-insured mortgage after a financial downturn, but with the Back to Work – Extenuating Circumstances Program, the FHA has removed those waiting periods, allowing hopeful homebuyers to shift from hoping to buying. It’s a great week for homebuyers down on their luck!
FHA Foreclosure Waiting Period Removed!
This new program will affect anyone who has dealt with one of the following difficulties and because of it, wasn’t currently eligible for a new FHA-insured mortgage:
- Pre-foreclosure sales
- Short sales
- Chapter 7 bankruptcy
- Chapter 13 bankruptcy
- Loan modification
- Forbearance agreements
Sometimes these credit-affecting events are beyond one’s control. An unlucky turn of events can leave a person with a credit history that doesn’t reflect their ability to take on a mortgage and make timely, responsible payments. The FHA, thankfully, has realized that and wants to help homeowners who have recovered from an unlucky financial situation. To do this, homeowners who have experienced one of the financial difficulties above will need to show documentation that proves three things:
- The credit damage was the result of either a loss of employment or a significant loss of household income beyond the homebuyer’s control. The event must have been severe enough to justify the severity of the financial difficulty. If your income was reduced by 20% or more for at least six months, you will pass this test.
- The homebuyer has fully recovered from the event. This means that their credit history has improved of late. Their credit issues have been resolved and any open mortgages show 12 months of great payment history.
- The homebuyer has completed housing counseling. They must have a recent HUD Counseling Agency certificate of participation showing a minimum of one hour of one-on-one counseling from an approved agency.
If you can prove those three things, you’re on the right track! After that, to waive that FHA foreclosure waiting period, you will need to provide additional documentation for underwriting and loan approval. This may take a while, so plan to be patient. Your mortgage lenders will need to verify a lot of information and will need you to provide tax returns, W2s, verification of employment, documentation of business closures, documentation of unemployment income, evidence of the financial damage, and more. It may take a while, but with some diligence and patience, you can skip past that FHA foreclosure waiting period and move forward with your mortgage application and home purchase.
Unfortunately, not all homebuyers will qualify for the Back to Work program and not all mortgage lenders are participating in it. But if you were previously prevented from obtaining a mortgage due to credit events beyond your control, this program might be just the stepping stone you need to get back on the road to homeownership!