Remember when your Realtor told you that you had to wait three years after a foreclosure or two years after a bankruptcy to be eligible for a new FHA loan. Not anymore!
Now, according to a new Federal Housing Administration (FHA) bulletin, you can slash that old waiting period to just a year, provided you can demonstrate your hardship (failure to maintain your mortgage payments) was due to external economic factors beyond your control, such as a pay cut, job loss or decline in business income that reduced your income by 20 percent or more for six months.
To qualify, you’ll have to show you’ve been a good economic citizen, making on-time rent and credit card payments in the year following your foreclosure or bankruptcy. Plus, you’ll also have to undergo housing counseling from an approved Department of Housing and Urban Development (HUD) agency.
The FHA’s announcement is welcome news for people who didn’t use their houses as cash machines to finance exotic purchases. It also signals a loosening of credit after the FHA had tightened many of its lending standards to replenish reserves drained by mass defaults.
So far, Freddie Mac and Fannie Mae, which guarantee conventional loans, haven’t followed the FHA’s lead. The agencies still require borrowers wait seven years after a foreclosure unless they can show mitigating circumstances. If allowed, the wait shrinks to three years.