Nov. 6, 2012
If you have experienced a foreclosure, then you know that mortgage lenders can throw major roadblocks on the path to subsequent attempts at homeownership. With the help of the Federal Housing Administration (FHA), however, that path is now a lot clearer.
For example, while Fannie Mae and Freddie Mac typically require seven years to elapse between a foreclosure and any subsequent loan, FHA-backed loans can have a much shorter waiting period.
If the borrower can show good credit and the ability to pay, the period could be as short as three years. In addition, because FHA loans require lower downpayments than conventional financing, FHA may be a better option for those borrowers on the road to recovery.
While generally borrowers are not eligible for an FHA-backed mortgage if their previous residence was foreclosed within the previous three years, an exception does exist for homeowners who can document that the foreclosure was a result of circumstances beyond the control of the borrower (like serious illness or death of the wage-earner) and who have re-established good credit.
The Federal Housing Administration was created in 1934 to help the struggling housing market. Essentially, the FHA functions as an insurer for banks, so that banks can lend with less-rigid requirements. The FHA puts measures in place to ensure responsible lending to borrowers likely to be able to repay their loans.