Monday, September 16, 2013

FHA eases rules for borrowers after bankruptcy, foreclosure

The Federal Housing Administration wants to make it easier for people who have defaulted on their mortgages to get a new home loan with FHA backing.

But there's a catch, to qualify borrowers must show that their foreclosure or bankruptcy was caused by external economic factors, reducing their income by 20% or more for six months. You can't have quit your job or have been fired for cause.

If you can demonstrate such a pay cut, job loss or decline in business income now must spend only one year making timely rent and credit-card payments before they can apply to buy a home with an FHA-insured loan.

Generally borrowers are not eligible for a new FHA loan until three years after a foreclosure or two years after a bankruptcy. Previously, the death of a spouse or a medical emergency had been exceptions that could cut the wait to a year; now loss of income is listed as an extenuating circumstance as well.