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New FHA Rule Allows Some Foreclosed Homeowners to Buy After One Year

By Alison Paoli

The Federal Housing Administration (FHA) recently announced a significant mortgage rule change that will allow some borrowers to get a new FHA loan just one year after a foreclosure, short sale, deed-in-lieu or bankruptcy as part of the new “Back to Work – Extenuating Circumstances” program.

To be eligible for the program, borrowers must be able to prove that a major economic event such as a job loss or severe reduction in income (20 percent for at least six months) was the main catalyst in losing their home. In addition, borrowers will need to show that their income has since fully recovered, and their credit score must be satisfactory. Finally, potential borrowers will need to complete a one-hour one-on-one housing counseling session. Borrowers will need to meet all other FHA eligibility criteria.
To be deemed with “satisfactory credit,” borrowers will need to meet the following guidelines for a minimum of 12 months:

  • No history of delinquency on rental housing payment.
  • No more than one 30-day late payment due to other creditors.
  • No collection accounts/court records reporting (other than medical and/or identity theft).

Prior to the major economic event, the borrower’s credit must have been satisfactory and in good standing.

However, even with the new rules, whether a particular borrower actually gets financing is ultimately at the discretion of individual lenders — even if the FHA rules say they can lend, individual lender rules could be significantly tighter, prohibiting them from lending below certain preset standards.

This is yet another reason why it is very important to shop around for your home loan. Borrowers can be told no by one lender and the same day be told yes by another. In addition, rates and fees for what some see as higher-risk borrowers may differ dramatically from lender to lender. Zillow Mortgage Marketplace is a great place to start your mortgage shopping. On average, borrowers gets more than 30 loan quotes per loan request.

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