Second-Chance Mortgages

New HUD Guidelines Offer Second Chance at Home Ownership

The U.S. Department of Housing and Urban Development (HUD) issued new guidelines in August 2013 designed to give a second chance at home ownership to people who have suffered through loss of a job or other one-time financial hardships.

Borrowers that may be otherwise ineligible for an FHA-insured mortgage due to recent bankruptcy, foreclosure or bad credit history may nevertheless qualify for such a mortgage if they can show that their situation was caused by an “economic event” beyond their control, they complete a housing counseling course, and they meet other regular HUD requirements.

What does HUD mean by an “economic event” beyond the borrower’s control? They mean things like loss of a job or other loss of income, or any other outside factors that cause a drop in household income of 20% or more, for at least six months.

One of the keys to this policy is that you must have recovered from your financial hardship. Recovery means that your credit history is clear of late housing or installment debt payments, clear of major negative issues on credit cards, and any open mortgage shows 12 consecutive on-time payments. Mortgages that are brought current through any temporary or permanent loan modification are OK.

Borrowers who have gone through a foreclosure, short sale or a bankruptcy (Chapter 7 or 13) can qualify after 12 months if the cause of their situation was the result of the kind of loss of income described above.

In short, these guidelines offer a second chance for people who have gone through bad economic times through no fault of their own, have recovered their financial footing and have been stable for a year. If that describes you, and you get the housing education and counseling HUD requires, any lender you apply to for a mortgage must look at you through the filter of these second-chance regulations.

Checklist
Do you qualify for a “second-chance” FHA mortgage?

q I lost my job, had a loss of income in my household or suffered some other financial hardship that was not my fault,

q If I lost my job, I can get proof of when that happened, or that my employer went out of business.

q My income was reduced by at least 20% and for at least six months.

q I can prove that I have a steady job or income now.

q I had a bankruptcy, mortgage foreclosure or short sale, but it’s been over for at least 12 months.

q If I had a bankruptcy, mortgage foreclosure or short sale, the reason it happened is because of the lost job/financial hardship.

q If I have a mortgage now, I have kept it current for at least 12 months in a row, even though I had some type of loan modification from my bank.

q I have received (or will receive) HUD-approved housing counseling in person, online or by phone, from an approved agency, at least 30 days before making my new mortgage application, but not more than six months before my application.

q My credit history over the last 12 months has no late housing payments.

q My credit history over the last 12 months has no late installment loan payments.

q My credit history over the last 12 months has no major derogatory issues on revolving accounts (e.g. credit cards).