If I lose this house, will I ever be able to buy a house again?
That, in a nutshell, is the central worry of Bay Area homeowners who face foreclosure or short sale of their homes.
That worry drives lots of homeowners to cling irrationally to a too-expensive house.
Fall out of home ownership and be forever excluded, they fear.
Can I get a home loan afterward
Before the Great Recession, the standard answer was that the effect of bankruptcy or foreclosure faded after two years.
In the last couple of years, the waiting time to qualify for another home loan grew. FHA required two years from bankruptcy and three years after a foreclosure or short sale.
Now, the pendulum seems to be swinging the other way.
FHA shortens time to qualify for mortgage
FHA, the government agency that guarantees loans for lower income or first time homebuyers, will now qualify those who have filed bankruptcy or suffered foreclosure after just a year.
There are conditions.
- Borrower must document that household income fell 20% or more for at least 6 months
- The lowered income must have resulted from an event beyond their control, like job loss.
- They must have a 12 month record of on-time housing payments
FHA commissioner Carol Galante wrote to FHA lenders that the agency “recognizes the hardships faced by these borrowers….their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
Home ownership in the bigger context
Beyond this FHA announcement, the larger lesson to be drawn is that bankruptcy, foreclosure, or a short sale won’t permanently bar you from buying another home.
Before you can even think about buying replacement house, you’ll need a down payment. That is probably the real drag on buying again.
So, if you are faced with a house you can no longer afford, take heart. Letting it go may just free you up to rebuild and buy again.
More on whether you should keep the house.
Image courtesy of Flickr and Images of Money
