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New Rules Allow Buyers with Foreclosures or Short Sales to Buy Again After One-Year Wait

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New lending rules now allow buyers who have suffered from a foreclosure or short-sale to qualify for financing. Recent revisions to Federal Housing Administration regs and technical updates to Fannie Mae guidelines have opened the door for many former homeowners to buy again just one year after foreclosure. Prospective homebuyers who couldn’t make their mortgage payments in full may want to talk to a real estate agent before deciding whether to try to purchase a home this year. San Diego-based company AfterForeclosure.com said that millions of banned borrowers nationwide will be eligible for a mortgage beginning in 2014.

Just a couple of years ago, there was a seven-year wait after a foreclosure, short-sale of bankruptcy. But now, Buyers who qualify otherwise but had a short sale or foreclosure on their record can now get financing under the Federal Housing Administration’s “Back to Work” program. New FHA regs will allow approval of many borrowers for a home loan just one year after a foreclosure, short sale, deed in lieu of foreclosure or bankruptcy. FHA’s previous timeline was three years for a short sale and foreclosure and two years for a bankruptcy.

Eligibility for a loan hinges on whether borrowers suffered a specific financial event during the recession that, through no fault of their own, caused them to lose their home. For approval of an FHA mortgage, the prospective homebuyer must take a housing counseling class. People who walked away simply because their house was underwater will not qualify.

Here are the rules for FHA’s “Back to Work” program:

  • Foreclosure, short sale or bankruptcy was the result of income or job loss beyond the borrower’s control.
  • The borrower has financially recovered from the event.
  • It’s been over one year since the foreclosure auction or short sale.
  • Borrower has completed housing counseling.

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