If you’ve lost your home to foreclosure or a short sale, there is a bit of good news. The Federal Housing Administration has made a major change to the FHA loan regulation regarding the waiting period if you have experienced a foreclosure, short sale or bankruptcy. Now, you may be able to obtain a new mortgage to purchase a home after a one-year waiting period, not three years as was required previously, if you meet certain conditions.
After the most recent economic downturn, the FHA recognized that many hardworking homeowners found themselves in a position where they could no longer afford their mortgage payments. Negative events, such as a job loss or other income reduction, caused a big increase in foreclosures, short sales and bankruptcies. The rule change is designed to provide potential homeowners like you with a new option.
One Year Rule to Benefit Borrowers
The Department of Housing and Urban Development (HUD) announced the rule change in August for people who have faced a foreclosure, short sale, deed in lieu of foreclosure or bankruptcy in the past. Previously, there was a waiting period of at least three years before you could qualify for an FHA loan, with some exceptions. The new rule allows you to obtain an FHA loan one year after a bankruptcy or foreclosure-related event under a specific set of extenuating circumstances.
You may be able to qualify for an FHA loan after one year if you can:
- Provide documentation to show that the delinquencies or default were the result of an “Economic Event” beyond your control.
- Complete a counseling program from a HUD-approved counseling agency.
- Meet other HUD guidelines.