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Will Previous Foreclosure Cause FHA AUS failure?

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Ougaouga
Member

Will Previous Foreclosure Cause FHA AUS failure?

Hi all,

 

      I'll be three years from the transfer of title out of my name on a foreclosure on March 9, 2023 and am planning to buy a house at that time. I've rebuilt my credit with no lates in the past three years, no collections or judgements. My current middle FICO mortgage score is 652 and I paid down my cc util from 37 percent to 5 percent and am waiting for that to post for a boost and will do AZEO for the next five months. Assuming I'm at 680 plus by then, will the foreclosure keep me from receiving an FHA AUS approval and force a downgrade to manual underwriting? I'm trying to determine if I'll be capped at the smaller DTI ratios due to manual underwriting or not. I've read conflicting answers to this on Google. 

Thank you for any guidance you can provide. I've made a lot of progress but sometimes it feels like this foreclosure is going to haunt me forever.

Message 1 of 5
4 REPLIES 4
pizzadude
Credit Mentor

Re: Will Previous Foreclosure Cause FHA AUS failure?


@Ougaouga wrote:

Hi all,

 

      I'll be three years from the transfer of title out of my name on a foreclosure on March 9, 2023 and am planning to buy a house at that time. I've rebuilt my credit with no lates in the past three years, no collections or judgements. My current middle FICO mortgage score is 652 and I paid down my cc util from 37 percent to 5 percent and am waiting for that to post for a boost and will do AZEO for the next five months. Assuming I'm at 680 plus by then, will the foreclosure keep me from receiving an FHA AUS approval and force a downgrade to manual underwriting? I'm trying to determine if I'll be capped at the smaller DTI ratios due to manual underwriting or not. I've read conflicting answers to this on Google. 

Thank you for any guidance you can provide. I've made a lot of progress but sometimes it feels like this foreclosure is going to haunt me forever.


I did a few quick searches as well, I thought that there was a 3 year waiting period to be elligible again for FHA and I'd be surprised if you'd be able to go through automated underwriting with a foreclosure. 

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX
Message 2 of 5
ShanetheMortgageMan
Super Contributor

Re: Will Previous Foreclosure Cause FHA AUS failure?

FHA requires 3 years from a foreclosure, but will make an exception if foreclosure was the result of documented extenuating circumstances that were beyond your control, such as a serious illness or death of a wage earner, and you have reestablished good credit since the foreclosure (usually means no new derogs since the foreclosure + 3 tradelines with 12 months of reporting history).

 

To answer your other question, anytime there is a foreclosure within 3 years it's automatically downgraded to manual underwriting guidelines so those debt ratio & reserve requirements would apply. 

 

Situations that automatically require a downgrade to manual underwriting on FHA loans are:

  • the mortgage file contains information or documentation that cannot be entered
    into or evaluated by TOTAL Mortgage Scorecard;
  • additional information, not considered in the AUS recommendation affects the
    overall insurability of the Mortgage;
  • the Borrower has $1,000 or more collectively in Disputed Derogatory Credit
    Accounts;
  • the date of the Borrower’s bankruptcy discharge as reflected on bankruptcy
    documents is within two years from the date of case number assignment;
  • the case number assignment date is within three years of the date of the transfer of
    title through a Pre-Foreclosure Sale (Short Sale);
  • the case number assignment date is within three years of the date of the transfer of
    title through a foreclosure sale;
  • the case number assignment date is within three years of the date of the transfer of
    title through a Deed-in-Lieu (DIL) of foreclosure;
  • the Mortgage Payment history, for any mortgage trade line reported on the credit
    report used to score the application, requires a downgrade as defined in Housing
    Obligations/Mortgage Payment History;
  • the Borrower has undisclosed mortgage debt that requires a downgrade; or
  • business income shows a greater than 20 percent decline over the analysis period.

 

If you are concerned about not being able to meet manual underwriting DTI requirements then you are less than 6 months out from being eligible for automated underwriting findings up to 46.99%/56.99% maximums.  A 680 score + clean credit since the foreclosure usually has a good chance of getting an automated underwriting approval.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 3 of 5
Ougaouga
Member

Re: Will Previous Foreclosure Cause FHA AUS failure?

Thank you Shane! So it sounds like as long as I wait until the three year seasoning date has passed I'll have a good chance of passing through AUS. I haven't had a late payment since 2019 and have five open tradelines with three + years of perfect payment history and nothing in collections. Now I'll just concentrate on saving more money and getting that middle score as high as I can. And hopefully the additional five months of waiting will work in my favor as house prices continue to come down Smiley Happy

Message 4 of 5
ShanetheMortgageMan
Super Contributor

Re: Will Previous Foreclosure Cause FHA AUS failure?


@Ougaouga wrote:

Thank you Shane! So it sounds like as long as I wait until the three year seasoning date has passed I'll have a good chance of passing through AUS. I haven't had a late payment since 2019 and have five open tradelines with three + years of perfect payment history and nothing in collections. Now I'll just concentrate on saving more money and getting that middle score as high as I can. And hopefully the additional five months of waiting will work in my favor as house prices continue to come down Smiley Happy


Having a previous foreclosure isn't ideal, but for someone who has had a foreclosure it sounds like your chances for approval are going to be as good as they can get.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
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