This month, we feature our continuing series in which we answer common questions regarding the loan process. Today’s question: I had financial troubles during the Great Recession that affected my credit rating. Will I be able to obtain a home loan?
A. The Great Recession affected the finances of many people in ways that were beyond their control. The FHA has recently recognized this fact, instituting new rules to make it easier for some borrowers with negative credit backgrounds to qualify for home loans.
If you experienced a decrease by 20% or more of household income for at least six months, resulting in derogatory credit events such as a short sale, foreclosure or bankruptcy – you may still be eligible for a loan, as long as:
- The loss of employment or income was due to an extenuating circumstance beyond your control and can be documented.
- You have restored a satisfactory credit history for a period of at least 12 months.
- You have completed HUD-approved housing counseling.
The FHA has also recently changed underwriting guidelines concerning outstanding prior judgments and collections, including excluding unresolved medical collections from the underwriting decision.
All of this means your chances of obtaining a home loan with a troubled credit history are much greater now than previously, provided you can prove that the credit troubles stemmed from an isolated incident.
Lisa Miles: NMLS #: 286749; CO Lic #: LMB100018629
Julie Whalen: NMLS #: 252298; CO Lic #: LMB100018008
Company NMLS #: 3274. Regulated by the CO Division of Real Estate. Guild Mortgage is an equal opportunity housing lender.
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