FHA Credit Policy Change Makes it Easier to Qualify "Economic Events" Recognized as Isolated

Effective immediately, policy changes in the way of the Federal Housing Administration (FHA) views certain derogatory credit to qualify for purchasing a home.  Allowances will be made for certain “economic events” resulting in poor credit ratings, which previously would cause borrowers to be ineligible.

What do the new rules say? Potential borrowers who experienced a decrease of income by 20% or more for the last 6 months, and that resulted in serious derogatory credit suck as a short sale, foreclosure, or bankruptcy, may still be eligible as long as:

  • The loss of employment or income was due to an extenuating circumstance beyond  his or her control and can be documented
  • A satisfactory credit history has been restored for a period of 12 months; and
  • Housing counseling has been completed

Other changes effective October 15, 2013 include amendments to underwriting guidelines in the area of outstanding, prior judgements and collections, including the exclusion of unresolved medical collections from the underwriting decision.