Real estate agents take note! The Federal Housing Administration recently announced a big change that could further stimulate the economy and bring more buyers into the market.

Waiting Period Reduced for Buyers Who Went Through Foreclosure

According to a mortgage letter released two weeks ago (Document 13-26)(, the FHA is now allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to apply for an FHA mortgage t in as little as 12 months. The waiting period used to be two years for bankruptcy and 3 years for either a foreclosure or short sale. By cutting the waiting period in half, the FHA may effectively open up more home buying??opportunities??for a whole crop of new FHA borrowers.


What’s the Catch?

There is one catch to this new rule: The potential buyers must show evidence that their financial losses were caused by an economic hardship beyond their control.

An economic hardship is defined as a recession-related financial event that results in loss of employment, loss of income, or a combination of both. To qualify for reentering the real estate market, these losses must have caused a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.

In addition, borrowers should expect to be asked to show that they have fully recovered from the event that caused the hardship. They will also need to go through home ownership counseling through an FHA-approved counselor.

“Housing counseling is an important resource for both first-time home buyers and repeat home owners,” the FHA stated in their August 15 mortgage letter. “Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and??assessment??of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower.”

Satisfactory Credit Requirements

In order to prove that the borrower has fully recovered from the economic hardship, they must meet certain credit requirements. The lender may deem a borrower to have satisfactory credit if:

  • the borrower’s credit??history??is clear of late housing or installment debt payments, and major derogatory credit issues on revolving accounts;
  • any open mortgage is current and shows 12 months satisfactory payment history. Mortgages may have been documented as being received in accordance with the modification agreement(s); and
  • the borrower meets the other requirements of the mortgage letter

Effective Date

According to the FHA, the new rule is effective for case numbers assigned on or after August 15, 2013 through September 30, 2016.