The KCM Blog -
Boomerang Homebuyers Get a Shorter Ride Home
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Posted: 22 Aug 2013 04:00 AM
PDT
Today, we
are honored to have Jim Sahnger as a guest blogger. Sahnger is a 20 year
veteran in the mortgage industry and is widely recognized for his expertise.
His thoughts have been noted in Bankrate.com, Wall Street Journal,
MarketWatch, Business Week and Investor’s Business Daily. – The KCM Crew
HUD recently announced
that people who lost their home through a foreclosure, short sale or
bankruptcy, may be eligible to finance a home again in as little as 12
months. This is a reduction from the previously required minimum of 36 months
from the date of the “most recent event.”
Released August 15, HUD
provided guidelines under “Back to Work – Extenuating Circumstances”
meant to ease the path for home ownership for many.
Boomerang homebuyers, as
they are now known, will need to document that the reason they were unable to
make their payments was due to a specific Economic Event. This impact
of this event must have resulted in a decline in income of 20% or more for at
least six months.
Some boomerang homebuyers who
experienced a bankruptcy and simultaneous foreclosure have discovered that
the two events may not be recorded at the same time. In cases where the
property did not transfer back to the lender at the time of the bankruptcy,
the period for the 36 month minimum waiting period as was required by HUD,
did not start until the title transferred back to the lender. In some
states, the time for transfer could be months or even years after the
discharge of the bankruptcy.
Extenuating
Circumstances
Extenuating circumstances for
the purpose of these guidelines are as follows. The borrower(s) must have
experienced a decline in income of 20% or more for a period of at least six
months. This could have been due to a job loss or a loss of income tied to earnings
like commissions or other customary bonus or incentive income.
Demonstrated Cure
With any situation of extenuating circumstances, a boomerang
homebuyer must be able to document that the event was isolated in nature and
not likely to reoccur again in the future. The borrower must also be able to
document that they have regained economic stability through timely payments
for a minimum of 12 months.
The timely payment history will
include rental/mortgage payments, installment payments, and/or revolving
payments for the 12 months preceding the mortgage application. There also
should not be any new collection accounts.
In addition to re-establishing
acceptable credit, the borrower(s) will be required to complete Housing
Counseling.
Eligibility
Requirements for Documenting Loss of Income
In the event of a loss in
employment, the lender will need to document the event by a written
Verification of Employment evidencing the termination date, public
information documenting the closure of the business if applicable and/or
documentation of unemployment income.
The lender will also need to
substantiate the loss of income through the verification of tax returns, W-2s
and tax transcripts.
Important Definitions
HUD announced several key terms
that must be reviewed in accordance with this program.
Economic Event: an occurrence beyond the borrowers control that resulted in a
Loss of Employment, Loss of Income or a combination of both which resulted in
a loss of Household Income of 20% or more for a period of six or more months.
Onset of Economic Event: the month of the start of or loss of income
Recovery from an Economic
Event: the re-establishment of acceptable or
satisfactory credit. Satisfactory Credit equates to no derogatory credit for
any mortgaged or leased property in the 12 months preceding the mortgage
application. This also includes any installment or revolving debt for the
same period.
Borrower: “Borrower” includes all parties including primary and/or
co-borrower as listed on the loan application.
Borrower Household Income: the income of all parties on the application or Household
Members as listed from the previous Economic Event and derogatory credit.
Housing Counseling: Counseling from a HUD-approved housing counseling agency
related to home ownership and meets acceptable requirements.
Other Requirements and
Information
HUD establishes a base line for
lenders to underwrite and approve mortgage applications. Some lenders may
choose to require baseline standards that exceed the minimum guidelines
listed here with regards to time from short sale, foreclosure or bankruptcy.
Lenders may also choose to
enact additional overlays with requirements to evaluation acceptable credit
regarding payment history, collection accounts and/or judgments.
In the event a prior defaulted
mortgage was endorsed by FHA, the lender will need to request a waiver which
may require additional time for processing. For anyone this pertains to, they
would be wise to alert the new lender to this as soon as possible in the loan
process.
Boomerang homebuyers whose
prior hardship was economically driven should be excited by this announcement
from HUD. For many, it is now recognized the worst is behind them and the
time to buy a new home is here.
*Additional Resource: HUD Approved
Housing Counseling Agencies
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