FHA Loan After Foreclosure Waiting Period Requirements

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In this article, we will be covering qualifying for an FHA loan after foreclosure waiting period requirements. HUD, the parent of FHA, has mandatory waiting period requirements after a housing event. A housing event is a foreclosure, a deed in lieu of foreclosure, or a short sale. We will also cover other mortgage loan options for homebuyers who had a prior foreclosure. Non-QM mortgages one day out of foreclosure is another option for homebuyers who cannot wait the FHA loan after foreclosure waiting period requirements.  In this article, we will cover and discuss the FHA loan after foreclosure waiting period requirements.

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The Commonwealth of Pennsylvania is one of the fastest-growing states in the United States. Home values throughout the state have been rising since 2013 with no sign of a correction. With mortgage rates being the highest in ten years, there is still a shortage of homes in the state of Pennsylvania.

The Federal Housing Administration, commonly known as FHA, is part of the United States Department of Housing and Urban Development.

• FHA, a governmental agency, is not a lender
• FHA has nothing to do with the origination, processing, underwriting, funding, and servicing of mortgage loans
• What are FHA Loans then?
• FHA Loans are residential mortgage loans that are insured by the Federal Housing Administration to approved private banks and mortgage companies
• FHA insures banks and mortgage companies in the event borrowers on their home loans
• FHA will partially cover the loss lenders take when borrowers default the property goes into foreclosure
• However, all lenders need to follow FHA lending guidelines in order for loans to be insurable by the Federal Housing Administration
• Homebuyers can qualify for FHA Loan After Foreclosure and Bankruptcy as long as they follow FHA guidelines after bankruptcy and foreclosure

Qualifying For FHA Loan After Bankruptcy

Homebuyers can qualify for an FHA Loan After Bankruptcy after two years from the discharge date of their Chapter 7 Bankruptcy.

• The waiting period does not start until the actual discharge date of the Chapter 7 Bankruptcy and not the date the bankruptcy was filed
• FHA expects no late payments after the Chapter 7 Bankruptcy discharge date
• Re-established credit after bankruptcy is required
• The best way of rebuilding credit after filing a Chapter 7 Bankruptcy is by getting several secured credit cards

Three to five secured credit cards are recommended with at least a $500 credit limit that can do wonders in raising credit scores and re-establishing credit.

FHA Loan During Chapter 13 Bankruptcy Period

Homebuyers can qualify for FHA After Chapter 13 Bankruptcy one year into the Chapter 13 Bankruptcy with the approval of the Bankruptcy Court.

• The mortgage loan borrower needs to have been timely with all monthly scheduled payments to their creditors
• Verification of rent will be required
• VOR is required because qualifying for a mortgage loan after Chapter 13 Bankruptcy is all manual underwrites

If borrowers have no verification of rent and are living with family, a letter of explanation is required and a letter by the landlord’s family member stating the borrower is living rent-free is required.

Qualifying For FHA Loan After Short Sale

Homebuyers can qualify for FHA Loan three years from the date of their short sale.

• The waiting period date to qualify for FHA Loan After Short Sale starts from the date the HUD was signed and the short sale was closed

FHA expects no late payments after a short sale and re-established credit from the borrower and/or borrowers.

Prequalified for a mortgage loan in just 5 minutes!

Qualifying For FHA Loan After Foreclosure And Deed In Lieu Of Foreclosure

 

Homebuyers can now qualify for FHA Loan After Foreclosure and Deed In Lieu Of Foreclosure three years from the recorded date of the foreclosure that is reflected on county records and/or the date of sheriff’s sale of the property. Many homeowners who had a foreclosure and/or deed in lieu of foreclosure many years ago do not qualify for an FHA Loan After Foreclosure or Deed In Lieu Of Foreclosure. This is because they just turned in the keys to their lender but the lender has not transferred the deed out of their names into the lender’s name.

Case Scenario

Here is a case scenario:

• • the homeowner could have turned in their keys on January 1. 2010
  • the lender did not sell the property until January 1, 2015
  • or did not transfer the deed out of the homeowner’s name into their names and recorded it on January 1, 2015
  • the three-year waiting period did not start until January 1, 2015
  • the homeowner will not be eligible to qualify for an FHA Loan until January 1, 2018

Mortgage Part Of Bankruptcy For FHA Loans

For borrowers with prior mortgage part of bankruptcy, there is a two-year waiting period to qualify for an FHA Loan from the discharge date of the bankruptcy. Then there is a three-year waiting period to qualify for an FHA Loan from the recorded date of the foreclosure.

• • Even though the mortgage balance got discharged through Chapter 7 Bankruptcy, the waiting period will not start until the lender has transferred the deed out of homeowner’s name into their name or until the home has sold

Mortgage Part Of Bankruptcy For Conforming & VA Loans

For borrowers with a prior mortgage part of bankruptcy, there is a four-year waiting period to qualify for a conventional loan from the discharged date of Chapter 7 Bankruptcy. This holds true even though the foreclosure was recorded at a later date. Conventional guidelines on the mortgage part of bankruptcy are quite different than qualifying for an FHA Loan After Bankruptcy.

Frequently Asked Questions (FAQs)

1. What is the waiting period for getting an FHA loan after foreclosure?
   Typically, the waiting period for an FHA loan after foreclosure is three years. However, in certain circumstances, borrowers may be eligible for an FHA loan sooner than that.
2. Can the waiting period be shorter than three years?
   Yes, under certain circumstances, borrowers may qualify for an FHA loan after foreclosure with a shorter waiting period. For example, suppose the foreclosure resulted from extenuating circumstances like employment termination, unexpected medical crises, or other significant financial hardship. In that case, the waiting period may be reduced to one year.
3. What documentation is required to prove extenuating circumstances?
   Borrowers seeking a shorter waiting period due to extenuating circumstances will typically need to provide medical records, proof of job loss, bankruptcy filings, or other evidence to support their claim.
4. Are there additional requirements for borrowers with a foreclosure on their record?
   Borrowers with a foreclosure on their record may face additional requirements, such as higher credit score requirements or larger down payment requirements. Lenders may also scrutinize the borrower’s financial history more closely.
5. Is it possible to get an FHA loan after foreclosure with bad credit?
   While FHA loans are known for being accessible to borrowers with less-than-perfect credit, a foreclosure on your record will likely significantly impact your ability to qualify. However, suppose you can significantly improve your creditworthiness since the foreclosure. In that case, you may still qualify for an FHA loan.
6. Are there any exceptions to the waiting period requirements?
   In some cases, borrowers may qualify for an exception to the waiting period requirements if they can demonstrate that the foreclosure resulted from circumstances beyond their control. Nevertheless, these exemptions are uncommon and usually necessitate thorough documentation and justification.
7. Can I refinance an existing FHA loan after foreclosure?
   Generally, borrowers with a foreclosure record will face challenges when refinancing an existing FHA loan. However, it may still be possible to refinance under certain circumstances, such as if you have rebuilt your credit and can demonstrate an improved financial situation.
8. What steps can I take to enhance my likelihood of meeting the eligibility criteria for an FHA loan following a foreclosure?
   To increase the likelihood of qualifying for an FHA loan post-foreclosure, concentrate on rebuilding your credit, setting aside funds for a larger down payment, and demonstrating responsible financial behavior. Working with a knowledgeable lender specializing in FHA loans can also benefit.

Borrowers with a mortgage part of a bankruptcy or need to qualify for a mortgage loan after a foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Borrowers can also email us at alex@gustancho.com. Gustan Cho Associates has a national reputation for being able to do loans other lenders cannot because of zero lender overlays on government and conforming loans.

Start your mortgage journey with us. Call us now!

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