FHA lowers post-BK/SS/DIL wait to 1 year

[SoulMaster]

In a nutshell, the FHA has new guidelines as part of it's Back to Work program.  This is my summary, I've only read through it twice, so I may have some stuff wrong:

IF:

     Income reduced by 20% or more of 6 mo or more

AND

     That was the direct-cause of BK/SS/DIL/Foreclosure

AND

     You were current until the income reduction

AND

     You've had perfect credit since AND/OR the income reduction is now cured

AND

     You go go housing counceling

THEN

     The waiting period post BK/SS/DIL/Foreclosure for an FHA loan is reduced to 1 year.

Here's the link to the PDF of the new FHA guidelines: 

Work - Extenuating Circumstances - HUD 

You can also google for "FHA back to work".  The lenders have to incorporate this stuff before you'll be able to get a new loan with this guidelines.  From what I understand, they're working on it already.

Cheers,

-SM

[ShanetheMortgageMan]

That is correct, I was going to make a post about this but been a little busy.

The direct link to the Mortgagee Letter 13-26 is http://portal.hud.gov/huddoc/13-26ml.pdf

A key piece of information is that 20% reduction in pay is based on the the people who were on the prior mortgage (if in the case of a foreclosure, short sale or deed-in-lieu of foreclosure, obviously wouldn't apply if the derogatory event was only a bankruptcy), and not just the individual(s) who areapplying for the new mortgage.  The exact definition is:

An Economic Event is 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.

Borrower Household Income means the gross income of the borrower and all Household Members, as defined below, for purposes of assessing loss of income. The gross income of each Household Member must be computed in accordance with FHA income requirements.

Note: Household Member, for the purpose of this ML, means an individual residing at the borrower’s primary residence at the time of the Economic Event and who was a co-borrower on the borrower’s previous mortgage.

Since this is effective immediately as of the date of the mortgagee letter, we've already started to see a few lenders go along with these new guidelines.  I imagine more and more lenders will join in each month.