The Federal Housing Administration is making it easier for once-struggling homeowners to qualify for a mortgage backed by the agency.
For borrowers who meet certain requirements, the FHA is trimming to one year the amount of time that homebuyers must wait after a bankruptcy, foreclosure or short sale before they may qualify for a FHA-backed mortgage.
The waiting period had been two years after the completion of a bankruptcy and three years after a foreclosure or a short sale.
But only certain consumers who’ve been in those circumstances will be able to meet the criteria attached to the eased restrictions. Borrowers must be able to show their household income fell by 20 percent or more for at least six months and was tied to unemployment or another event beyond their control. They also must prove they have had at least one hour of approved housing counseling and, among other things, have had 12 months of on-time housing payments.
“FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” said FHA Commissioner Carol Galante, in a letter to mortgagees announcing the changes.
FHA-backed mortgages are a popular option for first-time buyers and for consumers with lower credit scores who might not otherwise qualify for a loan backed by Fannie Mae or Freddie Mac. However, the agency has recently increased the fees tied to FHA-backed loans.