The Federal Housing Administration (FHA) recently enacted a rule change allowing borrowers who have fallen into foreclosure, bankruptcy, or a short sale to become eligible for a brand new mortgage backed by the FHA in as little as one year from the date of their previous foreclosure auction, the date of closing on a short sale, or the discharge date on a Chapter 7 bankruptcy.  Considering the previous waiting period for a government back mortgage was 3 years, the new rule, shortening the wait to 1 year, is a shiny new present to buyers who had all but accepted the reality of becoming renters for the foreseeable future.  The new rule is in effect till September 30th, 2016.


In order to qualify for the reduced waiting period a buy must provide proof of suffering an economic event that caused them to fall into financial instability.  Examples of such an economic event include:

  • a loss of job;

  • a 20% or greater reduction in income for 6 or more month;

  • a death of a wage earner; or

  • a serious medical issue

Furthermore, buyers must also provide documentation of a clean financial record for the past 12 months and show their ability to make the payments on their newly proposed mortgage.  The buyer is also required to complete a course on housing counseling.

Banks Have Option

It is important to note that banks maintain the discretion of whether to offer loans to previously delinquent homeowners under the new FHA 1-year rule.  However, it is believed that most banks will adapt and change their practices to comply with FHA’s rules.

FHA’s new 1-year rule is an exciting and favorable option for buyers, while both Fannie Mae and Freddie Mac still keep a 7-year waiting period on foreclosures, 2 to 7-year waiting period on short sales, and a 4-year waiting period on bankruptcies.