New FHA Rules for Boomerang Buyers

FHA has changed its rules for Boomerang Buyers – buyers who have faced a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or a short sale due to an economic event during the most recent recession.  Typically, a borrower would need to wait at least 3 years after a BK, F/C, DIL or S/S, but, under the revised rules, a borrower may be eligible for a mortgage after only waiting 12 months.
In a recent mortgagee letter, FHA stated:

“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. 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.”

What do I need to qualify under these new rules?

FHA is trying to help those affected by the recent recession and housing crisis who would have otherwise been able to maintain their otherwise good credit record.  To this end, FHA will consider borrowers who have experienced an economic event and can document that the problems they experienced were a direct result of this event.  For the purpose of this program, FHA defines an economic event as “any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower’s Household Income of twenty (20) percent or more for a period of at least six (6) months.”

Recovery from Economic Event

To prove that a borrower has recovered from the economic event, the borrower will have to show that their housing payments (rent or mortgage) show no late payments for the 12 months prior to applying for a mortgage.  Also, they will have to show that there are no more than one 30 day late payment on their other debts payments (e.g. credit cards, car loans, etc.) for the previous 12 months and no open collection accounts or court records (other than medical or identity theft).

Housing Counseling

In order to qualify under these new FHA rules, borrowers will also be required to receive homeowner counseling/education from a HUD-approved counseling agency.  This homeowner counseling/education must be completed at least 30 days, but not more than 6 months, prior to submitting a mortgage application.

Start Early!

I always recommend that a prospective e homebuyer contact me as soon as they make the decision to purchase a home.  But, for Boomerang Buyers, it is even more important to start early.  There will surely be items on your credit report that will need to be corrected.  There are many new steps under these new rules that will take some extra time to work through.  And, you will need time to complete your housing counseling/education.  Even if you do not yet meet these new guidelines, contact me now and I can help you through the process so you are prepared to purchase your new home as soon as you qualify.

As always, if you have any questions about anything regarding your home or mortgage, please contact me at 708-473-7688 or BarkerLoans@gmail.com.