U.S. housing officials are facilitating new mortgages for those who lost their homes after losing their jobs or going through a “significant loss of household Income beyond the borrower’s control.”
Normally, homeowners who were foreclosed on must wait three years before they can qualify for a loan backed by the Federal Housing Administration.
But new rules could allow these borrowers to qualify for a new mortgage in as little as a year. The federal policy shift represents a first-ever reduction in the usual waiting period between major financial hardship and the re-purchasing of a home.
FHA loans require only a 3.5 percent down payment and have more lenient lending standards than conventional loans. But borrowers are required to carry long-term mortgage insurance.
Getting a conventional loan after foreclosure can take up to seven years.
The FHA announced the changes Aug. 15 in a letter to lenders titled “Back to Work – Extenuating Circumstances.”
The FHA: “Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
Recovery from an “Economic Event” amounts to the re-establishment of satisfactory credit, as defined by the FHA’s new guidance, for a minimum of 12 months.
The FHA said it is allowing for the consideration of borrowers who have experienced an “Economic Event” and can document that:
- Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
- The borrower has demonstrated full recovery from the event; and,
- The borrower has completed housing counseling.
The FHA goes on to say that housing counseling is an important resource for both first-time home buyers and repeat home owners. It can enable borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget.