How to Buy a Home If You’ve Had a Foreclosure or Short Sale In the Past 


Millions of Americans lost their homes in the housing market crisis and are currently renting. If you’re in that situation and wonder if you will will ever be able to become a home owner again, don’t worry. According to the Federal Housing Authority (FHA), for many the answer is a conditional “Yes”. 

The new FHA Back to Work – Extenuating Circumstances Program is allowing borrowers who lost their homes due to financial hardship to apply for a mortgage again in as little as a year. Previously they stipulated a 5-7 year wait for those who have had a foreclosure on a property and 2-4 years for those with a short sale history. However, to qualify for an FHA loan you must meet three strict criteria:

  • Proving that the Foreclosure or Short Sale was Beyond Control of the Borrower 

    Former home owners need to show that the foreclosure or short sale on their property was caused by an event beyond their control. Examples include long-term unemployment or loss of income of at least 20% for at least six months.Those with a shorter period of delinquency or borrowers who worked with their mortgage holder to find a solution will be looked on more favorably than those who simply walked away from their property.

  • Show You Have Fully Recovered Financially 

    Potential home owners must be able to show they have fully recovered from the catastrophic event that led to the foreclosure or short sale of their former home. This includes showing they are settled in long-term employment and can afford to make mortgage repayments.Potential borrowers need to show a good credit history prior to the foreclosure. Make sure you are building satisfactory credit by paying rent, bills and credit cards in a timely manner. If you have past judgments for unpaid debts, try to clear them and improve your credit score dramatically. In the long run it will save you money through lower mortgage interest rates.  

    In some cases a deficiency judgment will be recorded on your credit report for the amount of the shortfall in a short sale, or for the full amount owed including legal fees in the case of foreclosure. This will have a lasting negative impact on your credit score, which is why agreeing a deed-in-lieu is always a better solution where possible.

  • Attend Counseling with an Approved Housing Counselor 

    Those wanting to apply for an FHA loan need to complete at least one hour of personal counseling with an approved councilor from the Department of Housing and Urban Development within 6 months of applying for a loan.

If you’ve had to go through a foreclosure or short sale over the past few years, buying a home may still be within your reach. If you’re thinking of buying a home and would like to discuss your options, please call me at 973-288-1733.