FHA “Back To Work” Program
On August 15, 2013, The Federal Housing Authority has announced it is shortening the mandatory waiting periods for homeowners with a black mark on their credit, such as a short sale, deed-in-lieu, foreclosure or even bankruptcy, to buy again through an FHA loan.
With this change, FHA has taken a giant step forward, by acknowledging that the Great Recession that started in late 2007, and lasted almost 5 years, forced many responsible homeowners into mortgage loan default and/or bankruptcy, and realizes that sometimes, certain events may be beyond one’s control.
This means if you have had a foreclosure, short sale, loan modification, bankruptcy or other derogatory credit event, you may be eligible to qualify for a home loan again. To qualify for the FHA “Back to Work” program, potential applicants must have experienced an economic event and be able to document that:
- Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income, beyond the borrower’s control;
- The borrower has demonstrated full recovery from the event (has had no late debt payments for 12 months); and,
- The borrower has completed housing counseling via a HUD approved housing counseling agency (available in person, online or via phone and usually lasts about 1 hour).
FHA mortgage insurance will now be available for any loan which meets the following two conditions:
- The loan must be made by an approved FHA lender
- The loan must meet the minimum standards of the “FHA Mortgage Guidelines”
Qualifying for the “Back to Work” Exception
You may be eligible to qualify for the “Back to Work” program if:
- You experienced a 20% loss of household income for a minimum 6 month period
- Your loss of income created an economic event such as bankruptcy, foreclosure, short sale, or loan modification.
- You can show a (timing) correlation between the loss of income and the hardship
- You can show that you have recovered from your hardship with 12 months of timely payments
In order to qualify for the back to work exception, you have to show that the financial hardship is in the past and not likely to occur again.
Satisfactory Credit encompasses specific requirements that must be documented prior to this exception being granted:
- You credit history is clear of late housing or installment debt payments, and major derogatory credit issues on revolving accounts;
- Any open mortgage is current and shows twelve (12) months satisfactory payment history. Mortgages that have been brought current through loan modifications, which may be “temporary” or “permanent” so long as all payments have been documented as being received in accordance with the modification agreement(s); and
- You meet all other HUD requirements for qualifying for an FHA insured mortgage
- Required Documentation
Loss of Employment Verification and Documentation:
Lender receives a written Verification of Employment (VOE) showing the termination date, or in cases where the prior employer is no longer in business:
- a written termination notice, or
- other publicly available documentation of the business closure, and
- documentation of receipt of unemployment income.
Loss of Income Verification and Documentation:
Your lender will need to verify and document your Household Income prior to Loss of Income by obtaining:
- A written VOE evidencing prior income; or
- signed tax returns or W-2s evidencing prior income
- For a Loss of Income based on seasonal employment, your lender will need to verify and document a two year history of seasonal employment in the same field just prior to the Loss of Income, in addition to meeting the documentation requirement above.
- For a Loss of Income from losing a part-time job, the lender will need to verify and document a two year history of continuous part-time employment just prior to the Loss of Income in addition to meeting the documentation requirement above.
Housing Counseling Requirement
A requirement of establishing Satisfactory Credit following an Economic Event, potential buyers looking to use the Back to Work Extenuating Circumstances exception must complete Housing Counseling from a HUD approved housing counseling agency.
Extenuating Circumstances Exception participants must:
- Receive homeownership counseling or a combination of homeownership education and counseling provided that each participant receives, at minimum, one hour of one-on-one counseling.
- Counseling must address the cause of the economic event and the actions taken to overcome the economic event and reduce the likelihood of that event or reoccurring.
- Counseling must be completed a minimum of thirty (30) days PRIOR TO LOAN APPLICATION but no more than six (6) months prior to submitting a loan application to a lender.
- Housing counseling may be conducted in person, via telephone, via internet, or other methods approved by HUD. For a list of HUD approved counseling agencies in Florida, you can view online here –HUD Counseling Providers Online, or call 1(800) 569-4287.
How do I apply for the program?
You can apply for an FHA Back to Work – Extenuating Circumstances mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.
When you’re ready to begin looking for your next home, please feel free to email me at firstname.lastname@example.org or via phone at 321-946-1004. I can help you begin the search for your next home and put you in contact with a qualified FHA-approved lender.
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