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    FHA Reduces Wait Times for Buyers Who Had Foreclosure or Short Sale Thursday, October 3rd, 2013

    The FHA just made it easier for buyers with previous financial hardships to qualify for an FHA-backed loan again.  This is welcome news for buyers who went through short sales or foreclosures during the recent economic downturn. Under the new program, the FHA indicates a buyer can repurchase again after one year instead of three, provided they can document they lost 20% of their income.

    FHA Change Eases Way for More Buyers

    The FHA announced this week they will reduce the time buyers 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.

    “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” FHA Commissioner Carol Galante said in the letter.

    But, fulfilling the new, more lenient waiting period won’t automatically qualify borrowers for an FHA-backed loan. Borrowers will have to show that they experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months. They must demonstrate that they have fully recovered from the event (is their credit and employment stable again?), and agree to complete housing counseling prior to closing (an easy 1 hour online course).

    For example, say an individual lost his job during the recession, couldn’t pay the mortgage and eventually was foreclosed upon. Under standard FHA waiting times, that person might not be eligible for a new loan for up to three years. However, if the applicant qualifies as having experienced “an economic event” — defined in the new guidance as “any occurrence beyond the borrower’s control that results in loss of employment, loss of income or both” that causes a 20 percent decline in household income for at least six months — the applicant will now be allowed to qualify to obtain a new FHA-insured mortgage in as little as one year instead of three.

    For additional information on how to qualify under this new rule, I wrote a piece recently on this subject for the San Diego Union Tribune newspaper, see HERE . I write articles every few weeks for the Union Tribune’s Real Estate section at the weekend, I hope you can check some of them out.

    Conventional, VA and FHA Repurchase Rules After a Financial Hardship

    Here are the rules for repurchasing again after suffering a foreclosure, a short sale or a BK, and a buyer is looking to obtain either Conventional, VA or FHA financing. Currently more than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA! So if a buyer is looking to purchase and needs financing, it is more than likely they will be using one of these 3 financing options.

    1. When Can I Repurchase Again After a Short sale?

    Here are the time lines for when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.

    FHA. It is 3 years before a buyer can repurchase again using FHA financing. *TIP: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

    VA. It is only 2 years before a buyer can repurchase again using VA financing.

    Conventional. Until recently it was 4 years before a buyer can repurchase again using Conventional financing. TIP: But Fannie Mae implemented a new rule recently that allows buyers to repurchase again using conventional financing after only 2 years instead of 4, as long as they put 20% down (see chart below) and their loan application is approved by the Fannie Mae automated underwriting engine. Contact me for more details.

    2. When Can I Repurchase Again After a Foreclosure?

    Here are the time lines for when a buyer can purchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.

    Conventional. It is 7 years before a buyer can repurchase again using FHA financing.

    FHA. It is 3 years before a buyer can repurchase again using FHA financing.

    VA. It is only 2 years before a buyer can repurchase again using VA financing.

    3. When Can I Repurchase Again After Bankruptcy?

    Here are the time lines for when a buyer can purchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.

    Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.

    FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing.

    VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.

    Helping Buyers Rebuild Their Credit

    As the housing downturn is now 6 years old, there are more and more buyers coming into the market who suffered a financial hardship in the past.

    But it is very important that buyers have also started to re-establish their credit again since their hardship, because even though the required time line of say 2 or 3 years may have passed so they can qualify for conventional or FHA financing again, it is important that buyers have also started to rebuild their credit too, and also have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 620 credit score to repurchase again.

    The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are. Buyers can go to www.annualcreditreport.com to get a FREE copy of their credit report (CA consumers are allowed 1 free credit report per year).

    Then the next step is for buyers to start rebuilding credit scores. I have a “Credit Education and Improvement” section on my website, devoted to helping buyers and consumers understand how credit works and how to improve their scores, so they are able to score the best rates and financing terms, see HERE

    Tips for buyers and agents

    There are lots of buyers who suffered a financial hardship in the past who are already getting back into the market again to purchase a home. And as Conventional financing now requires only 2 years (if the buyer has 20% down), and the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1-3 years, there are a lot more buyers who will be eligible to repurchase again, but just don’t know they can.

    If you have any questions about any of these repurchase time lines above, or you would like to get approved for financing, please do not hesitate to contact me directly at 858-442-2686.