How to Reduce the Waiting Period Before Purchasing a New Home

• A signed, written statement from the borrower’s third-party and documentation confirming that this was an isolated occurrence that significantly reduced the borrower’s income and/or increased their expenses
• No evidence that the borrowers had unacceptable credit prior to the problems
• Evidence that the borrowers have reestablished acceptable credit with at least four references for at least two years, including one traditional credit reference (an account that would appear on a credit report), and one housing related reference (e.g. a PG&E, SMUD or Comcast bill).

• Evidence on the credit report and other credit documentation that the borrower’s present credit is current
• Evidence that no new public records, no 60-day late payments, no more than two 30-day late payments and no housing lates exist for the most recent 24 months
• If the client is unable to obtain thirdparty documentation confirming the extenuating circumstances or reestablishment of credit, the derogatory or adverse credit information cannot be offset.

For a new FHA loan:
Foreclosure:

A borrower whose previous residence or other real property was foreclosed on, sold through a short sale, or was given a deed-in-lieu of foreclosure within the previous three years is generally not eligible.

If the foreclosure was greater than three years prior to the date of the application, and the risk decision (AUS) received is an accept, the loan does not need manual downgrading (manual underwrite in the eyes of FHA means that your ratios are 31% housing /43% debt-to-income) and foreclosure documentation is not required.

Remember, FHA counts from the day the mortgage insurance claim was paid to the lender, not the trustee sale date – sometimes it can take months before the claim is paid. Have your mortgage professional check with FHA to confirm the date the claim was paid.

• Collection, tax lien, charge-off, or judgment
• Any mortgage trade line, including mortgage line-of-credit payments, during the most recent 12 months consisting of more than one 30-day late

If the risk decision (AUS) received were an “accept” and the items above appeared on the credit report and were considered by the AUS, manual downgrading (manual underwrite-meaning lower ratios and more conservative) is not required and further documentation is not required. Follow FHA standard guidelines regarding payment of judgments and/or collections.

• The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12 to 24 months.
• The borrower makes a large down payment (10% or more) toward the purchase of the property.
• The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.
• Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses.
• The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.
• There is only a minimal increase in the borrower’s housing expense.
• The borrower has substantial documented cash reserves (at least three months’ PITI) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination.
• Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. “Assets” such as equity in other properties and the proceeds from a cash-out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves.
• The borrower has substantial nontaxable income (if no adjustment was made previously in the ratio computations).
• The borrower has a potential for increased earnings, as indicated by job training or education in the borrower’s profession.
• The home is being purchased as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and has reasonable prospects for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.

• Delinquent Accounts
  When delinquent accounts arerevealed, the underwriter must determine whether:

• The late payments were due to a disregard for, or an inability to manage, financial obligations, or
• Due to factors beyond the control of the borrower, including delayed mail or disputes with creditors.