FHA May Waive Waiting Period

Filed under: Market Comentary, Qualifying for a Mortgage Loan

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 Waiting Period Waived?

The FHA is contemplating new, looser mortgage guidelines that would waive its standard “waiting period” after a significant derogatory credit event. Home buyers with recent bankruptcy, foreclosure or short sale may be cleared to buy homes immediately.

The Federal Housing Administration (FHA) is not a mortgage lender; the FHA does not make loans. Rather, it insures loans for banks that do.

The FHA publishes a compilation of rules known as “FHA mortgage guidelines” and so long as a mortgage meets of the rules’ minimum standards, the FHA will insure the loan-issuing bank against default.

A better name for an FHA mortgage, then, might be FHA-insured mortgage; it’s a more accurate reflection of the relationship between the FHA and mortgage lender nationwide.

Mortgage guidelines are a living, breathing thing. As the housing market moves, and as credit conditions necessitate, mortgage guidelines transform. This is true for FHA mortgage guidelines, just as it is for Fannie Mae- and Freddie Mac-type loans and VA loans, for example.

Within 75 days, the FHA is expected to change its purchase mortgage guidelines to allow home buyers with major derogatory credit events in their recent history to skip the traditional “waiting period” for an FHA-backed mortgage.

Major derogatory events include foreclosure, short sale, and Chapter 7 bankruptcy. The mandatory waiting period for each of the aforementioned events are as follows, assuming credit has been re-established by the borrower:

• Foreclosure : Must wait 3 years before eligible for FHA-insured financing

• Short Sale In Default : Must wait 3 years before eligible for FHA-insured financing

• Chapter 7 Bankruptcy : Must wait 2 years before eligible for FHA-insured financing under the FHA’s expected new plan, these waiting periods will be waived in full.

Soon, FHA-insured loans may be available to home buyers who may have been recently foreclosed upon; for whom a short sale was necessary; or for whom a Chapter 7 bankruptcy was discharged yesterday.

The FHA’s new waiver on foreclosures, short sales and bankruptcies would add to the national pool of home buyers, creating buy-side demand for housing and upward pressure for home values nationwide.


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