Big news of late is that many people who experienced foreclosure or bankruptcy or who sold their homes for less than they owed may be able to get back in the buying market sooner than expected.
The San Joaquin Valley, including Tracy, was strongly impacted by all of those occurrences in recent years.
Under previous Federal Housing Administration rules, most people who had lost their homes were looking at a three-year wait period. After a bankruptcy, a two-year wait was typical.
Now, those who have experienced an "economic event" as defined by the FHA Mortgagee Letter 2013-26 may be able to purchase a home as little as a year later.
This pertains to FHA purchase buyers, and the criteria are fairly specific. The changes will not pertain to everyone who has gone through foreclosure, bankruptcy or short sale.
Job, income loss is key
The FHA is continuing to evaluate the circumstances of people who experienced financial difficulties due to extenuating circumstances. Specifically, these circumstances are defined as either job loss or income loss.
Some people lost their homes or had to file bankruptcy to discharge or restructure their debt. The FHA’s logic is that the hardships people faced in recent years may not fully reflect their ability or propensity to handle and pay a monthly mortgage.
The FHA defines an "economic event" as any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both causing a reduction in the borrower’s household income of 20 percent or more for at least six months.
Lender verification needed
As part of the prequalification process for borrowers seeking loans, lenders will obtain documentation including written verifications of employment. An evaluation must determine that the individual experienced a qualifying job or income loss.
Documentation of the time since the foreclosure, short sale or bankruptcy must also be submitted.
In keeping with the standard loan process, borrowers can expect a thorough analysis to ensure that they can afford their payments. Recovery and re-establishment of satisfactory credit for a minimum of 12 months is essential.
More details are outlined in the FHA mortgagee letter.
Beginning the process
For those who think they qualify, a good first step is enrolling in homeownership education and counseling. Successful completion is required at least 30 days but no more than 6 months before submitting a loan application to a lender.
A course may be taken online or from a variety of agencies. A list of agencies can be obtained at www.hud.gov or by calling 800-569-4287.
For additional information on the program, borrowers can call the FHA Resource Center at 800-CALLFHA (800-225-5342) or visit www.hud.gov/answers.
Those who qualify for these loans must meet the other standard FHA criteria. Various lenders and investors may have their own specific guidelines.
However, potentially re-entering the home purchase market after one year is certainly a major change in the market.
• Carla Carroll is a senior loan officer at Diversified Capital Funding in Tracy. Comments can be sent to firstname.lastname@example.org, or she can be reached directly at 914-3753 or email@example.com.