According to several recent news articles, the Federal Housing Authority (FHA) is due to loosen some very important mortgage guidelines for potential homeowners. The FHA is currently thinking of relaxing its guidelines for the standard waiting period of getting FHA insured loans for certain types of negative credit events. These events include filing for bankruptcy protection, having a mortgage foreclosure, and being forced into making a short sale on your home.
Currently, each of these negative events require a potential buyer to wait a specific amount of time before they are eligible to get the FHA-insured loans.
An applicant is required to wait two years after filing a bankruptcy, three years for having a foreclosure, and three years for making a short sale. Under the expected new FHA guidelines, the waiting periods will be waived for the three negative events.
The FHA reasoning behind the guideline changes is that the waivers will immediately add to the national pool of home buyers. This in turn will hopefully create a buy-side demand for housing that might force home values to shoot upward nationwide. The mortgage industry is still reeling from the Great Recession, and the buying pool has been lacking, creating a glut of unsold homes and a housing market that has been depressed.
Some believe the reason the mortgage crisis came about this past four years was because of the loosening of the bank’s requirements for obtaining loans. Many believe a contributing factor to the mortgage crisis was unqualified buyers who purchased homes they really could not afford. As long as the economy was good, most of the buyers made their payments on time, but when the economy turned, many lost their jobs and ability to make the high principal and interest amounts.
Bankruptcy, foreclosures, and short sales can all be caused through no fault of a homeowner. When the economy goes bad and you lose a job, you may not be able to make your debt commitments. Loosening the guidelines to create a larger buying pool is a calculated risk most likely worth taking by the FHA. Banks have tightened their guidelines and barring a return to lending insanity, the waivers should help improve the housing dilemma. Guidelines can change from year to year to meet the ever growing and changing make up of the American home buyer.
The FHA is not a mortgage lender; it does not make loans. The government institution insures loans that banks make for prospective homeowners. The FHA publishes a collection of insuring rules called their mortgage guidelines. As long as a prospective home buyer meets the minimum standards laid out in the guidelines, the FHA will insure a loan issued by a participating bank against the default of the loan. The FHA insurance enables many more people to qualify for a home loan than would normally qualify because the risk for the mortgage banks is less.
This can be good news for those of you who have recently experienced a bankruptcy, foreclosure or short sale. Look up! The American Dream is not dead just yet.
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