The "Back to Work" Program is available as of August 15th from the Federal Housing Administration, better known as FHA relaxed its guidelines for homebuyers who "experienced periods of financial difficulty due to extenuating circumstances" and would like to purchase a home again.
The "Back to Work - Extenuating Circumstances Program", has removed the traditional waiting periods that typically followed a derogatory credit event such as a Chapter 7 bankruptcy or if you had a short sale and had late mortgage and/or installment debt in the 12 months preceding the closing of the short sale.
If you've experienced any of the following financial difficulties over the last few years, you may be eligible for a new FHA insured mortgage to become a homeowner once again:
- Pre-foreclosure sales
- Short sales
- Chapter 7 bankruptcy
- Chapter 13 bankruptcy
- Loan modification
- Forbearance agreements
FHA has realized that, sometimes, credit events may be beyond your control, and that credit histories don't always reflect a person's true ability or willingness to pay on a mortgage.
If you are a Homebuyer who has experienced an Economic Event (Short Sale, Bankruptcy, Deed in Lieu of Foreclosure or Foreclosure) in the past and can document that
(1) certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control,
(2) the homebuyer has demonstrated full Recovery from the event and,
(3) the homebuyer has completed housing counseling.
A Recovery is considered full, if “the borrower’s 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 may have been brought current through loan modification, which may be “temporary” or “permanent” so long as all payments have been documented as being received in accordance with the modification agreement.”
If the homebuyer meets the test for the Recovery, they must meet the another new test to see if the Loss of Employment or Loss of Income was severe enough to justify the Economic Event. The test put in place requires the documentation of a Borrower Household Income loss of twenty percent or more for a period of at least six months.
These transactions will require additional documentation for underwriting and loan approval, so homebuyers need to be prepared to provide the extra documentation and should allow a longer time period to obtain loan approval.
- Lenders need to verify and document a reduction in the borrower’s Household Income of twenty (20) percent or more for a period of at least six (6) months that resulted from the Loss of Employment, Loss of Income, or a combination of both. This will be done using a combination of tax returns, W2’s, Verification of Employment forms, documentation of business closures, documentation of receipt of unemployment income or similarly reliable documentation. If the Loss of Income was seasonal in nature, a full two years prior to the prior to the loss of income must be documented.
- Lenders will need to show evidence of on time payment history for housing, all remaining mortgages and installment debt for the last 12 months. Also in the event you had a previous short sale, provide documentation the proceeds served as payment in full.
- Also they will need to document evidence for the bankruptcy
(a) the bankruptcy was discharged 12 or more months ago,
(b) the date of closing on a short sale was 12 or more months ago and finally
(c) that 12 months have lapsed since the date of title transfer to the foreclosing lender in the event of a foreclosure
- The homebuyer will need a HUD Counseling Agency certificate of participation in pre-purchase counseling, which is a minimum, one hour of one-on-one counseling from HUD-approved housing counseling agencies be completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application to a lender. Also disclosing and relationship with the lender and counseling agency.
If you are considering buying a new home here are the definitions that are considered during the loan approval process.
- An Economic Event is any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower’s Household Income of twenty (20) percent or more for a period of at least six (6) months.
- The Onset of an Economic Event is the month of Loss of Employment/Income.
- Recovery from an Economic Event is the re-establishment of Satisfactory Credit for a minimum of twelve (12) months.
- The term Borrower includes borrowers and co-borrower.
- Borrower Household Income means the gross income of the borrower and all Household Members for purposes of assessing loss of income (not qualifying income on the new loan). The gross income of each Household Member must be computed in accordance with current FHA income requirements.
- Household Member means an individual residing at the borrower’s primary residence at the time of the Economic Event and who was a co-borrower on the borrower’s previous mortgage.
- Housing Counseling means counseling from a HUD-approved housing counseling agency.