FHA reduces waiting times for foreclosures, bankruptcies

The Federal Housing Administration has announced in a letter to mortgagees that it will reduce the time homebuyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage. The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The agency has now reduced the waiting period to one year.

Effective for all case numbers assigned on or after August 15, 2012 borrowers that experienced an Economic Event (a decrease of income by 20% or more for at least six months) that resulted in serious derogatory credit such as a short sale, foreclosure, or bankruptcy, may be eligible if:

• The loss of employment or income was due to an extenuating circumstance beyond his or her control and can be documented;
• Satisfactory credit history has been restored for a period of 12 months; and
• Housing counseling has been completed.

“Recovery from an Economic Event is the re-establishment of Satisfactory Credit (as defined on page 5 of this ML) for a minimum of twelve (12) months…… “to read the Mortgagee Letter in it’s entirety click here