The Federal Housing Administration (FHA), which insures these loans, will typically pay the lender the remaining loan balance. The foreclosure will be recorded on the borrower's credit report, significantly affecting their credit score and ability to qualify for new loans, including FHA loans, for a period of 3 years.
If you are applying for another type of mortgage, the waiting periods vary, as shown below: Conventional: seven-year waiting period. FHA: three-year waiting period. VA: two-year waiting period.
FHA First Mortgage
Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due. Otherwise limited to 85% LTV. Standard 31/43 ratios, may be exceeded with compensating factor(s).
Foreclosure. A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.
The FHA foreclosure waiting period is a mandatory three-year period of time that must pass before an individual can again be eligible for an FHA loan after previously having had their mortgage foreclosed upon by a lender.
During the 5 week notice period, the homeowner can stop the foreclosure by making-up all missed payments (including late fees and attorney costs) or working with an attorney to stop the foreclosure process. The only time it is too late to stop a foreclosure is when the property is sold at auction to a new party.
If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.
FHA-specifics
If you can show proof that you have now been employed for at least a six-month period before requesting a FHA loan, AND that before any employment gap you worked for two-years straight or longer, you have the potential to get approved.
If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.
It takes around 47 days to close on an FHA mortgage loan. FHA refinances are faster and take around 32 days to close on average. FHA loans generally close in a very similar timeframe to conventional loans but may require additional time at specific points in the process.
Is it hard to get an FHA loan? Getting any type of home loan requires effort and resources, but generally, it's easier to qualify for an FHA loan than for a conventional mortgage. With the pandemic and recession, however, many lenders' FHA loan and refinance requirements have become more restrictive.
Buying A Foreclosure Property At An Auction
At an auction, third-party trustees oversee the sale of homes that banks or lenders have taken ownership of due to the original homeowners defaulting on their mortgage loans. Buyers can purchase a home quickly – and usually for a low price – at auction.
Defaulting on a mortgage can lead to foreclosure. No borrower wants to lose their home but to avoid this process, you must coordinate with your lender. There are many ways to default and go into foreclosure on an FHA mortgage, but many of those issues can be avoided if you work with your loan officer in time.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
Exceptions to the Rule: When You Can Have Multiple FHA Loans
The FHA recognizes that life circumstances can necessitate having more than one FHA loan. To be eligible for a second FHA loan, you must have at least 25% equity in your home or have paid down the FHA loan balance to 75% in certain circumstances.
You may be denied for an FHA loan if you have declared bankruptcy but you have not had the bankruptcy discharged. You may be denied if you are delinquent on federal taxes or otherwise owe money to the federal government but without an approved payment plan.
FHA Loan Down Payments
The minimum down payment you're required to make on an FHA loan is directly linked to your credit score. Your credit score is a number ranging from 300 – 850 that's used to indicate your creditworthiness. An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher.
At the time of loan application: a) the borrower must be current, b) must have made at least 6 full months of payments since the first payment date and, c) at least 210 days must have passed from the closing date of the mortgage being refinanced.
You can remove MIP after 11 years if your original down payment was at least 10% of the purchase price. If your down payment was less than 10%, you must pay MIP for the life of the loan, unless you refinance.
Borrowers are entitled to loss mitigation evaluations under the new rules, even if they applied for and were rejected for loss mitigation before the new rules took effect, provided they file their complete applications more than 37 days before a scheduled foreclosure sale.
A "foreclosure bailout loan" is a mortgage loan designed to stop a foreclosure. Usually, the foreclosure bailout loan will refinance the entire balance of the existing loan. But some lenders make loans in an amount that's just sufficient to reinstate the defaulted loan.
To contest a judicial foreclosure, you have to file a written answer to the complaint (the lawsuit). You'll need to present your defenses and explain the reasons why the lender shouldn't be able to foreclose. You might need to defend yourself against a motion for summary judgment and at trial.