The FHA has made it drastically easier for once-struggling homeowners to qualify for an FHA loan.
The Federal Housing Administration has announced in a letter to mortgagees that it will reduce the time homebuyers 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 also demonstrate that they have fully recovered from the event, and agree to complete housing counselling prior to closing.