Blog | HUD Announced New Rules For FHA Loans

16

Sep
2013

HUD Announced New Rules For FHA Loans

FHA Just Announced New Rules for FHA Loans After

Foreclosure, Deed in Lieu, Short Sale & Bankruptcy

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The Department of Housing and Urban Development (HUD) recently announced a  rule change for borrowers who have been through foreclosure, short sale, deed in  lieu of foreclosure, or bankruptcy.  In the past, these borrowers had to wait at least three years before they could qualify for an FHA loan, with a few exceptions. The new rule generates a set of extenuating circumstances that  could allow borrowers to get an FHA loan only one year after a bankruptcy or financial hardship resulting in a foreclosure-related event.  This significant change in the policy will  likely lead to an increase in the FHA’s market share

The housing crasy recession put millions of homeowners in a situation where they could no longer afford their mortgage payments. This resulted in  foreclosures, short sales and bankruptcies to rise sharply during the recession years. FHA recognized that many people in this situation were usually very responsible when it came to their finances.  So the Federal Housing and Urban Development (FHA) is allowing borrowers who can show that the negative event was due to income losses beyond their control could be eligible for an FHA loan within one year of the event.

Borrowers who were previously ineligible for an FHA loan due to the existing waiting period of 3 years may now qualify for the program under the following conditions:

  1. The borrower can provide documentation to show that the delinquencies or  default were the result of an ‘Economic Event’ beyond their control. See  definition of Economic Event below.
  2. The borrower has completed an approved counseling program. See requirements  below.
  3. The borrower meets all of HUD’s other guidelines for FHA Loan Eligibility

Homeowners who meet the above requirements would be eligible to apply for an FHA loan 12 months after a bankruptcy, short sale, foreclosure or Died in Lieu.

Counseling for FHA Borrowers

The revised FHA rule also has an educational component. To be approved for an FHA loan after a foreclosure, deed in lieu of foreclosure, short sale or  bankruptcy, borrowers must also take part in housing counseling. This counseling is designed to help borrowers understand their mortgage options, create a housing  budget, avoid common scams and more. The minimum requirements are as follows:

  • Borrowers must receive at least one hour of one-on-one counseling from a  HUD-approved counseling agency
  • Counseling may be conducted online, via Skype, over the phone, in person, or  through other HUD-approved methods
  • The counseling must address the cause of the foreclosure, short sale or  bankruptcy, as well as actions that can be taken to reduce the chance of it  happening again
  • Counseling may be conducted online, via Skype, over the phone, in person, or  through other HUD-approved methods
  • Counseling must be completed at least 30 days, but not more than six months,  before the loan application is submitted

 


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