Have you heard that the Federal Housing Administration (FHA) recently lowered their requirements for borrowers who’ve experienced bankruptcy or foreclosure? It’s true, and this will make it easier for many people who have fallen under hard times to get back into the housing market sooner.
For agents working with potential buyers who experienced a foreclosure in the past this could help them qualify to get back into the market.
Not long ago, the FHA made the decision to ease the qualifications to acquire a FHA backed loan for those who’ve defaulted on their mortgage. In the past, the FHA required applicants to make two to three years of on time credit-card and rent payments for those who’ve undergone a bankruptcy or foreclosure respectively. Now, qualifying applicants are able to attain a loan within one year after they have defaulted.
Not everyone qualifies for this new policy though. On top of the one year of timely payments, applicants must also be able to prove their bankruptcy or foreclosure was a result of outside economic factors, which resulted in an income reduction of at least 20% or more than six months. A reduction in pay, job loss, or decline in business is acceptable for this stipulation, but this cannot be said for those who have quit their jobs or have been fired. Once these stipulations have been met, applicants must then seek housing counseling by one of the many agencies approved by the Department of Housing and Urban Development.
The new policy is set in place to help those who have been victimized by circumstances outside of their control, not those who have been careless with their money. It’s important to distinguish the two though, as the recipients of these loans are deemed capable of making their payments, and in turn will help better the economy by purchasing a home.
Unfortunately, many companies offering mortgages still hold their tight requirements for similar applicants. Many firms, such as Fannie Mae and Freddie Mac, demand that borrowers wait seven years after they have been foreclosed on before they can receive a new loan. The lucky borrowers, ones that have justifying circumstances, can have this reduced down to three years, but this can be challenging to attain.
Regardless, the FHA easing their policies will allow more people to shop for homes, further stimulating the market. Let’s hope that these policies continue to relax.
Have you seen an impact on your business from loan requirements? What are your thoughts?
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