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FHA – Federal Housing Administration published a mortgagee letter August 15 stating borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale may now reenter the market in as little as 12 months.

All borrowers who experienced a foreclosure were required to wait at least three years before potentially qualifying for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered for financing in as little as 12 months after the release from the property.

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.

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