FHA eligibility OK 3 years post-foreclosure

WASHINGTON – Nov. 1, 2012 – The Federal Housing Administration (FHA) insures home loans so banks can offer loans with lower downpayments and more flexible income requirements. For many Florida residents who went through a foreclosure, an FHA loan might be their best option to buy a home while prices remain reasonable and mortgage rates are still low.

Here’s what the FHA says about loans after foreclosures and short sales:

• Previous mortgage foreclosure: Borrowers are generally not eligible for a new FHA-insured mortgage if, during the previous three years, their previous principal residence or other real property was foreclosed, or they gave a deed-in-lieu of foreclosure.

Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

Divorce is not an extenuating circumstance. An exception may, however, be granted where a borrower’s loan was current at the time of the divorce, the ex-spouse received the property, and the loan was later foreclosed.

The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

• Borrower current at the time of short sale: A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and installment debt payments for the same time period were also made within the month due.

• Borrower in default at the time of short sale: A borrower in default on a mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

Exception: A lender may make an exception to this rule for a borrower in default on a mortgage at the time of the short sale if the default was due to circumstances beyond the borrower’s control, such as the death of a primary wage earner or long-term uninsured illness, and if a review of the credit report indicates satisfactory credit before the circumstances beyond the borrower’s control that caused the default.

On a short sale, long-term job loss or layoff would be considered an exception considered to be circumstances beyond the borrower’s control.

Note: Borrowers are not eligible for a new FHA-insured mortgage if they pursued a short-sale agreement on their principal residence simply to take advantage of declining market conditions.

© 2012 Florida Realtors®

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