The Federal Housing Administration will now allow a bankruptcy debtor to get an FHA backed mortgage in as little as a year after bankruptcy, provided that certain minimal criteria are met. Many bankruptcy experts believe that this is yet another strong sign that bankruptcy is well on its way to losing whatever stigma may have been associated with it in the past.
The FHA will now consider borrowers who have received a bankruptcy discharge or short sale or foreclosure more that one year prior if the borrower can show the following:
- Debtor(s) experienced an “economic event” beyond the debtor’s control that resulted in a loss of household income of at least twenty percent for a period of at least six months; and
- Prior to the economic event, the borrower had good credit and that certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
- the borrower has demonstrated full recovery from the event; and
- the borrower has completed housing counseling.
The FHA seems to be recognizing that in order to fully recover from the economic downturn, many Americans are turning to bankruptcy in order to get a real fresh start and that these people are credit worthy and will want and deserve to be able to obtain mortgages after bankruptcy. Obviously the real estate market is never going to recover if potential buyers are kept out of the market for no good reason. This is good news for everyone.