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Saturday, October 5, 2013

New FHA program reduces wait to 12 months after "economic event"

A new FHA program, just introduced, reduces the wait to 12 months after a derogatory credit event when the borrower has satisfactory credit during those 12 months.

This reduced wait period is available after foreclosures, deeds in lieu, bankruptcies etc. if the derogatory credit was caused by an economic event that decreased the borrowers household income by 20% or more for 6 months.

So what's an economic event? "Any occurrence beyond the borrower's control which results in a loss of employment or income that reduces the borrowers household income by 20% or more for at least 6 months." e.g.- a pay cut or being laid off would qualify but quitting a job would not.

  • Household Income: Gross income of the borrower and any individuals who resided in the     borrowers primary residence at the time of the "economic event" and or who were a co-borrower on the borrower's previous mortgage.
  • Each Participant must receive at least one hour of one on one counseling from a HUD approved housing counseling agency. Can be completed in person, by telephone or via internet.
  • Must be completed a minimum of 30 days but no more than 6 months prior to application. A list of approved agencies is available at HTTP:// or call: 1-800-569-4287
  • No first time home buyers, must have had a mortgage previously.
Documentation of the Economic Event which caused the credit deficiencies:
Analyze all delinquent accounts and indications of derogatory credit to determine if they were a result of the economic event or an inability to manage debt.
  • Not eligible if the derogatory credit was due to the inability to manage debt.
  • Includes collections, judgments, bankruptcies, deeds in lieu, short sales, foreclosures etc...
  • The borrower must have had satisfactory credit prior to the event.
  • The derogatory credit occurred after the economic event.
  • The borrower has re-established satisfactory credit for a minimum of 12 months.
  • Gross income for all borrowers residing in the property or a co borrower on the mortgage prior to the event and gross income after the event is verifiable through letters of release.
  • Signed 2-3 years tax returns, final paystubs, etc...
To speak with someone regarding these new developments in this ever evolving mortgage environment we are in, please go to and contact us for a confidential consultation.

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