Been Through the Short Sale, Bankruptcy, or Foreclosure Process? FHA Will Help You Get a New Home Loan.
It's a lot easier for formerly troubled homeowners to get an Federal Housing Administration (FHA) loan. That's because FHA has formally announced that potential borrowers will qualify for an FHA-backed mortgage only a year after bankruptcy, foreclosure, or the short sale process was complete. In years past, potential homeowners would have to wait two years after bankruptcy and three years after foreclosure or short sale to qualify for a new FHA mortgage; that was simply just regarded as an extended part of the foreclosure process. This program is called "Back to Work", and will be getting to work for soon-to-be homeowners immediately.
If anything, this is definitely a reflection of our shifting times and the aftereffects of the "Great Recession". Years ago, foreclosure was a rare occurrence; in the past several years, foreclosure has become commonplace, and even ubiquitous in some parts of the country. Carol Galante, FHA's commissioner, even implied this herself in an official letter to mortgagees. "(FHA) realizes that credit histories (of today's borrowers) may not reflect their true ability or propensity to repay a mortgage." In simpler terms, people are recovering from the troubles of the last 5 years, and FHA is willing to help those who are now in a more stable position than before.
How Easy Will It Be For Borrowers?
Getting a new loan won't be as simple as waiting out the 1-year recovery period. FHA has several stipulations for borrowers to qualify for this program.
- Borrowers will have to show in a hardship letter that they experienced hardship (or in FHA's words, an "economic event"), such as unemployment or sickness, that caused their income to fall by at least 20% for six months, and will have to prove that they've recovered from that hardship.
- Borrowers must to attend at least 1 hour of counseling sessions before being considered for a new loan.
- Applicants will have to show that they were responsible homeowners before their "economic events".
- Borrowers have to meet down payment, credit score, and mortgage insurance guidelines.
- No more than one 30-day late payment on all other accounts.
- No accounts in collection.
Why is This Program So Important?
This is a major step because FHA is not just any lender. FHA-backed mortgages are often the most viable choice for first-time homebuyers and borrowers with lower credit scores, who would otherwise have trouble qualifying for a loan from Freddie Mac or Fannie Mae. "Back to Work" is also important because it helps FHA itself, which is predicted to post a shortfall of $1 billion this year.
Hopefully FHA's changes will do their part to help people return to stable housing situations, and may be an additional source of hope for those who are currently experiencing hardship. Do you think "Back To Work" will do much to stimulate the housing market, or is are these efforts just a tiny drop in the bucket? Let us know your opinion in the comments section below.