FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

 

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

 

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

 

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

 

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

 

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

 

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

 

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30

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What you Should Know Before Buying a Home

This past week, I have posted several articles on credit reports.  Below are a few things you should know before buying a home:

1)  Get Pre-Qualfied – you will need to find out what you can qualify for and obtain a Pre-Approval letter before going out to look at homes.

2)  If you have marginal or bad credit, consult your lenderthey will be able to advise you on whether your credit history will prevent you from qualifying for a home loan.

3)  You will need a down paymentDown payment requirements vary depending on the type of loan.  There are a few down payment assistance programs, but gone are the days of lots of  ZERO down loans, unless you are a Veteran.  Consult with a lender about the programs available in your area.

4)  You will need funds for closing costs – In addition to your down payment, you may need to have additional funds for closing costs (i.e. Escrow, title, mortgage insurance, taxes, loan fees and fire insurance).

5)  Some loans have “points” and some do not – A point is a loan origination fee equivalent to 1% of the loan amount.  Together with the interest rate they constitute the yield on your loan for the lender.  Some lenders charge a higher interest rate to compensate for charging no points.  It is important to comparison shop lenders to make sure your loan is at a competitive yield.

6)  Should you select a mortgage with a fixed rate or an adjustable rate?  It depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home.  If rates are low, a fixed rate would be more attractive and if rates are high, an  adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments.  Also lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you.

7)  Be aware of the two main type of loan categories – Conventional Loans and Government Loans (FHA/VA) .  Both of these loan types are available with fixed or adjustable interest rates and some require mortgage insurance.

8)  If you are a low or moderate income home buyer – there are some local and state housing agencies, like the California Housing Finance Agency(CalHFA) that have special loan programs available.

9)  Why might I have to pay mortgage insurance?  Generally, conventional loans that require larger down payments do not require mortgage insurance.  Mortgage insurance is always required on FHA loans.  Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. 

10)  Many organizations offer home loan counseling to prospective home buyers– These organizations provide classes for home buyers to cover the steps to home ownership.  They will cover home selection, realtor services, lenders, loan programs, home ownership responsibilities, saving for a down payment, and other important pieces of information.  Many first-time home buyer programs require home buyers to attend this type of class to be eligible for selected programs.

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