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Foreclosed FHA borrowers can purchase again in 12 months

If you experienced a foreclosure due to extenuating circumstances you only have to wait 12 months before applying for new FHA mortgage loan

The FHA Back to Work—Extenuating Circumstances Program announced in 2013 has been extended through Sept. 30, 2016. The program gives families a second chance at homeownership.

Families who have undergone a foreclosure, short-sale, deed-in-lieu or declared bankruptcy no longer have to wait 3 years to qualify for a FHA mortgage. Under its new program, Back to Work—Extenuating Circumstances, the waiting period for most borrowers is now just 12 months. Both first-time and repeat home-buyers can apply.

Back to Work—Extenuating Circumstances is part of an ongoing effort by the FHA to expand access to mortgage credit to families who are credit-worthy but experienced an economic hardship. The hardship could be due to a serious illness or the death of a wage earner or loss of job.

Documentation Required

To qualify you must document the financial problems that caused you to default your prior home. Specifically you’ll need to show a 20% loss of income or more for at least six consecutive months leading up to the default.

Verification of employment will be required to show dates when the loss of income occurred. Other documentation may include pay stubs within the dates your income decreased, W-2s and/or tax returns that show lower reported wages for that time frame will also meet the FHA requirement.

Re-established credit

Borrowers must have re-established a good credit score, and show they can afford loan payments again. This can be achieved if other debt was paid satisfactorily during loss of the home. It is entirely possible that a good credit rating can be maintained if all other obligations were paid on-time.

Specifically borrowers must demonstrate a full recovery from the “economic event” by showing a 1 year history of perfect payment on a major account.

Borrowers must also demonstrate they have fully recovered from the loss. If they went into foreclosure due to losing a job, for example, they must be able to prove that they are now employed.

Housing Counseling Course

A U.S. Department of Housing and Urban Development-approved, pre-purchase housing counseling course is required to qualify. The course can be completed in person, by telephone or online at least 30 days prior to submitting a loan application.

This new program can be good news for potential homebuyers who have experienced an “economic event” but only time will tell if homebuyers will be able to take advantage to become homeowners again.


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