July 11, 2014
A reader asks, “My wife and I completed our deed in lieu of foreclosure in May 2012. We’ve been renting since and saving a lot for a down payment on a future home. I’ve heard mixed statements from various institutions and real estate agents – exactly how long after we complete the deed in lieu, can we approach a bank for a pre-approval on a new loan?”
In 2012, the Department of Housing and Urban Development held a webinar on FHA loan credit underwriting. HUD published notes from that webinar that were made available from HUD.gov as a downloadable PDF file which included a section that specifically addresses this type of reader question.
According to the section titled,”Foreclosure/Deed in Lieu” we learn the following FHA stance on the waiting time following a deed-in-lieu-of-foreclosure, also known as a seasoning period:
“A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years his/her previous principal residence or other real property was foreclosed or he/she gave a deed-in-lieu of foreclosure.”
However, the FHA also adds that an exception may be possible under the right circumstances.
“The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.”
Some borrowers may wonder if certain situations count as “circumstances beyond the control of the borrower”. The FHA anticipates some of these questions (but not necessarily all) but stating:
“Divorce or the inability to sell the property due to a job transfer or relocation does not qualify as an extenuating circumstance. For divorce an exception may be granted where a borrower’s loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed. A mortgage included in a bankruptcy does not negate the foreclosure requirements.”
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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