If you lost a house to foreclosure or thad to sell a home while in the foreclosure process, take a deep breath. You could be eligible to buy a home again sooner than you think.
The U.S. Department of Housing and Urban Development (HUD) released Mortgagee Letter 2013-26 which is the new guidelines allowing previous homeowners with a black mark on their credit history to qualify for a new mortgage as soon as 12 months after foreclosure or pre-foreclosure sale (typically a short sale), down from the 36-month minimum window set under previous guidelines.
Forbes magazine is reporting that there is a current surge in new eligibility from the homeowners who were foreclosed or had a short sale between September 2007 and August 2010 and became eligible under the old guidelines. This new guideline allows people who were foreclosed or had a short sale between September 2010 and August 2012 to also now become eligible again for a home loan.
Not all of these people will want to be homeowners again. Also from Forbes:
The ability and willingness of boomerang buyers to re-enter the market over the next year will be a key bellwether of the long-term health and direction of the U.S. housing market going forward for the next decade, and possibly beyond. The more who re-enter the market sooner rather than later — possibly spurred on by this new FHA rule enabling them to do so — the more likely we’ll see a return to a typical home ownership-dominated society and the more quickly institutional investors will pull out of the single family rental market and move on to other ways of making money.
So let’s talk about the new guidelines.
Seasoning requirements on bankruptcies and foreclosures/short sales can be shortened if a borrower experiences and Economic Event. An Economic Event is defined as any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both which causes a 20% reduction in household income.
- Borrower must meet the following guidelines:
- Verify good credit prior to event
- Verify month of loss of employment/income with written VOE or written termination notice or other publicly available documentation AND documentation of receipt of unemployment income.
- Document household income decreased by 20% during a period of more than 6 months (income from all individuals residing at the borrower’s primary residence at the time of the Economic Event and who was a co-borrower on the borrower’s previous mortgage). Need signed tax returns or W2 evidencing prior income
- Post Economic Event Income. Verify and document borrower’s income after the onset of the economic event.
- Re-establish satisfactory credit for the past 12 months. No lates on housing payment
- Complete Housing Counseling and obtain certificate at least 30 days prior to loan application and no more than 6 months prior. All borrowers, including non-occupant co-borrowers must be on certificate.
Preparing For Getting Pre-Approved
Your best bet when buying a home is to be pre-approved and not just pre-qualified.
- Employers’ names, addresses and phone numbers from the last 2 years
- Consecutive pay stubs
- W2s or 1099s from the last 2 years
- Completed federal income tax returns
- Proof of income from other non-employment sources
- Government-issued identification
- Recent statements from all of your checking, savings, money market, stocks, bonds, mutual funds and retirement accounts.
- Outstanding loans and credit card statements
- Student loan statements
- Divorce decree if paying alimony or child support
If you have filed for bankruptcy, have all of that documentation as well.
Talk to a reputable loan officer about your situation. They spend a lot of time on the new programs and guideline changes and will work diligently to help find a good solution for your situation.
As we wrote about last week, it’s still generally cheaper to buy than to rent, so maybe now is the time to dive back in and own a home again.
Please post your thoughts in the comments section. Thanks!