Hope for Buyers with Prior Bankruptcy, Short Sale, or Foreclosure

Over the last several years, the economic cycle in housing has been tough on many families.  The scenarios of upside down mortgages, job loss or modification, and declining investment values created conditions that drove many homeowners into foreclosure and/or bankruptcy.
Now that the housing market has shown signs of recovery and price appreciation, The Federal Housing Administration (FHA) has revised its guidelines to facilitate continued recovery by cutting the time requirement that home buyers must wait after a bankruptcy, foreclosure or short sale to one year before they may qualify for an FHA-backed mortgage.  Until now, buyers had to wait two years after a bankruptcy and three years after a foreclosure or short sale, as well as show a clean slate of credit rebuilding and timeliness of payments on any existing debt.  This new “Back to Work” program is an attempt to bring more buyers back into the market.
Who can qualify for this new program? The first test of eligibility is whether the home buyer experienced on of the following “economic events”:

Pre-foreclosure Sale	Short Sale	Deed-in-lieu
Foreclosure	Chapter 7 Bankruptcy	Chapter 13 Bankruptcy
Loan Modification	Forbearance Agreement

For former homeowners who experienced one of those financial crises, there is a second eligibility test.  The obvious element is that the potential borrower must be able to demonstrate a full recovery from the event.  In order to qualify, borrowers will need to prove:

• Household income fell by 20 percent or more for at least six months during the year of the crisis;
• The income drop was tied to unemployment or another event beyond their control;
• They have had at least one hour of approved housing counseling; and
• They have had a full year of on-time housing payments.

The acceptable documentation of the economic factors related to income will be tax returns, W-2s, or a written Verification of Employment.  If a complete job loss was experienced, unemployment income receipts can be provided.  The “20% loss of income” eligibility applies to any member of the household.  The most appropriate documents needed can be determined by a lender.  The lender will review the borrower’s credit report and verify that the credit history prior to the economic event was good and that any derogatory credit occurred after the onset of the event, and that there is 12-month perfect payment history re-established on major accounts. 
Savannah area buyers who want more information about whether or not they would qualify for FHA’s new initiative should contact Michael Caputo at Starkey Mortgage.  Once eligibility is determined, let’s get shopping!