It has been a tough couple of years for most folks in this country, as reflected in the day-to-day questions that I field from potential customers and agents. I thought I would put down a few of those questions along with the answers for review and discussion.
1.How long after a Chapter 7 bankruptcy before I can purchase a home?
The general answer is two years. The borrower must have re-established good credit or chosen not to incur new credit obligations. Under extenuating circumstances, a borrower may be approved earlier, but only if more than 12 months have elapsed since the bankruptcy release.
2.How long after a foreclosure before I can purchase a new home?
A borrower is generally not eligible for a new FHA-insured mortgage if, during the preceding three years, his/her previous principal residence or other real property was foreclosed or a deed-in-lieu of foreclosure was executed.
3.How long after a short sale can I purchase a home?
A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. A borrower is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim.
Exception: The lender may grant an exception to the three-year requirement if the foreclosure or short sale was the result of documented extenuating circumstances beyond the borrower’s control (e.g., a serious illness or death of a wage earner) and the borrower has re-established good credit since the foreclosure.
4.Can I have a co-borrower(s) that will not occupy the property?
When there are two or more borrowers, but one or more will not occupy the property as a principal residence, maximum financing is available for borrowers related by blood, marriage, or law, such as spouses, parents, children, siblings, stepchildren, aunts-uncles, and nieces-nephews, or unrelated individuals who can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction. If co-borrowers do not meet any of the aforementioned relationship criteria, then a 75% LTV is required.
5.How much can a seller pay toward my closing cost?
The seller may pay up to 6 percent of the sales price.
Note that the guidelines presented above should be taken into account when underwriting the borrower’s complete credit package. If you would like to review any of the above guidelines firsthand, visit the FHA website and review the online version of the HUD Mortgage Credit Manual 4155.1.