house short saleBorrowers have struggled for years to find financing following a short sale or foreclosure.  In fact, the general rule is that a borrower must wait anywhere from two to five years following a short sale before qualifying for a new mortgage.  Even worse, borrowers generally must wait five to seven years following a foreclosure or bankruptcy before qualifying for a new mortgage.

Fortunately for many borrowers, however, FHA recently announced a new policy that allows borrowers to qualify for a mortgage within one year following a short sale, foreclosure, or even bankruptcy.

In order to qualify under FHA’s new guidelines, the borrower must:

(1)     have a minimum credit score of 620; and

(2)     the borrower must demonstrate that he or she experienced an “Economic Event that resulted in a severe reduction in income due to a job loss or other circumstances resulting in reduced household income.”

Thus, as long as a borrower has a decent credit score and can show a job loss or reduction in income, a borrower may now qualify for FHA financing just one year after a short sale, bankruptcy, or foreclosure.

This is wonderful news since interest rates are still relatively low.  Without this new policy, waiting two to seven years could literally cost hundreds of thousands of dollars as interest rates continue to increase.

Of course FHA financing comes with restrictions.  For instance, one caveat is that the lending limits for FHA financing is about $346,000 in Maricopa County.

Additionally, it is still unclear how Fannie Mae and FHA will interpret the “Economic Event.”  But at a minimum, the borrower must show a significant loss of income that was beyond the borrower’s control, a full recovery from the Economic Event, and completion of housing counseling.  And an “Economic Event” is defined as a loss of employment or income (or a combination of both) which results in reduction in the borrower’s household income of 20% more for a period of at least six months.

Even with these restrictions, these new guidelines come as a welcome relief to those who have been trying to purchase a home in the last few years.

Better late than never!

If you or someone you know would like additional information regarding borrowers’ options following a short sale or foreclosure, please call Attorney Christopher J. Charles today. And for more information regarding the new FHA guidelines, please follow this link to the FHA’s Mortgagee Letter 2013-26.

Christopher Charles is an experienced real estate lawyer and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”).  He has an “AV Preeminent” rating by the Martindale-Hubbell Peer Review Ratings system, which connotes the highest possible rating in both legal ability and ethical standards. 

He is a Partner with the law firm Davis Miles McGuire Gardner, PLLC where he serves as the chair of the Real Estate Practice Group. Mr. Charles is an Arbitrator and Mediator for the AAR regarding real estate disputes; he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. 

Mr. Charles is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. For a list of upcoming speaking engagements, please visit  He can be reached at