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Sep
05

Eased Guidelines on FHA Home Mortgage Loans for People with Bad Credit

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After getting hammered for years from special interest groups, banks and lenders, the Federal Housing Administration has announced they are loosening credit standards on federally insured mortgages under the FHA finance program. The Department of Housing and Urban Development has worked with the FHA in an effort to simplify the process for borrowers that recently defaulted on their home loans to get a second chance. To qualify for this revised FHA loan program for people with poor credit, applicants must be able to document that their loan default, short-sale or bankruptcy was caused by economic factors beyond their control. According to the LA Times, people must be able to show the underwriter that their income dropped at least 20% for at least six months.

Get a Second Chance with FHA Home Buyer Loans for People with a Bad Credit History

People that have the ability to document the income dip, job loss or reduced business income now would be required to document 1 year with on-time housing and credit-card payments prior to applying to finance a house with a FHA home purchase loan. In a recent HUD bulletin, the Federal Housing Administration introduced this aggressive FHA home buyers loans.

FHA also mandated that borrowers interested in this bad credit FHA mortgage must attend house counseling from an approved agency outlined by HUD. In the past, people were not eligible for a FHA mortgage programs for 3-years after a home foreclosure or 2-years after a chapter 7 or 13 bankruptcy.

Other Lending Highlights

In a recent interview, FHA Commissioner Carol Galante said, “What we’ve did here is to say, ‘Let’s look at the Great Recession and financial crisis with that lens,’” Galante said. “We want to recognize and distinguish between Americans hindered by that very serious circumstance beyond their control versus borrowers that may have run into problems because they maxed out their charge cards and fell behind on their payments.” As the economy started getting better we were hearing about more and more people whose access to credit moving forward was being stifled by the situation the country has been through,”

Many people in the industry had been anticipating that HUD and Congress would tighten guidelines more because of the low reserves and increased delinquencies, so this announcement of expanding guidelines for FHA mortgages for people with bad credit. Many lenders and brokers believed that HUD would raise the 500 minimum credit score requirement as well as increase the down-payment requirement from 3.5% to 5%., so the fact that this isn’t happening is great news for loan originators and home buyers nationally. Read the original LA Times Article.

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