Buying A House One Year After Foreclosure

[color-box color=”gray”]
FHA is now allowing potential borrower’s to qualify for a FHA loan as soon as 12 months after a foreclosure, short-sale, or bankruptcy.  But this is only for borrowers where the derogatory credit was caused by an Economic Event, which is defined by HUD as job loss, or a 20% or greater reduction of income, for a period of at least 6 months.  This reduction of income must have been the cause of the foreclosure, short-sale, or bankruptcy. Below is a summary of these guidelines:

1. The borrower must be able to prove that the cause of the loss of their home or the bankruptcy was due to a loss of employment or a significant reduction to their income (20% or greater).  The loss of employment or reduction of income must have been for a period of 6 months or longer.
2. The onset of the derogatory credit is the month of loss of Employment/Income.
3. The borrower must have re-established and maintained good credit after the Economic Event.  They must also still meet the minimum credit score requirements.  This means no late payments, collections, or judgments after the Economic Event.
4. The borrower must have been creditworthy prior to the loss of employment or income.   Per HUD this means no 30 day late payments, collections, or judgments in the 24 months preceding the loss of employment or reduction of income.  Any negative credit must have been caused by the loss of employment or income.

If the borrower does meet the above guidelines there are additional guidelines that must be considered:

1.  The potential borrower must receive a minimum of one hour of one-on-one counseling from a HUD approved housing agency.  The counseling must be completed a minimum of 30 days, but no more than 6 months, prior to the loan application.  This means that the potential borrower must wait 30 days after the counseling before they can apply for a mortgage loan.  Although the HUD requirement is for a minimum of one hour most counseling agencies require 8 hours before issuing a certificate.
2. HUD requires this loan to be underwritten manually meaning automated underwriting cannot be used.  This means we are required to follow HUD’s more conservative ratio guidelines and the borrower must prove that they have been paying rent on time for the past 12 months.

[/color-box]