The Federal Housing Authority announced a new program on August 15, 2013 to help consumers who suffered a legitimate financial hardship during the recession. This program was designed to help prior homeowners get back into home ownership sooner than the standard three-year waiting period.
This program acknowledges FHA’s understanding that the hardships people faced during the recession, and the credit history damage that resulted, are not necessarily a true reflection of a person’s ability or motivation to repay a mortgage. This program, which was extended to September 2016, is a ‘second chance’ program for mortgage applicants who experienced a financial hardship because of unemployment or a severe reduction in income during the economic recession.
To qualify for a loan under the Back-to-Work program you must meet several eligibility requirements.
You must have experienced a financial hardship that resulted in one of the following ‘economic events’:
1. Short Sale
2. Deed in Lieu
3. Foreclosure
4. Chapter 7 Bankruptcy
5. Chapter 13 Bankruptcy
6. Loan Modification
7. Forbearance agreement
An FHA approved lender must determine if you meet the FHA loan requirements. FHA mortgage insurance is available for loans that meet two primary conditions. The loan must be made by an FHA approved lender and the loan must meet the minimum standards of the FHA Mortgage Guidelines. These include having verifiable income, a minimum credit score of 500, and cash reserves for a down payment of 3.5% of the purchase price of the home.
You must also be able to explain, and document, your hardship and show that it corresponded to your ‘economic event’ (i.e., short sale, foreclosure, bankruptcy). You can present W2s or tax returns to show reduction of income or you can provide written Verification of Employment that evidences prior income. Your income, after the onset of the economic event, should represent a loss of 20% or more for a period of at least since months.
Additionally, after your hardship ended, you must have re-established a twelve-month credit history showing perfect payment history on housing payments and major accounts with no delinquencies. Your credit must also show that you have not been more than 30 days late on more than one non-housing loan payment. Minor delinquencies on revolving accounts are allowed and if you have any open collection or judgment accounts that have not been settled, a ‘capacity analysis’ can be done to see if you are able to repay those creditors and take on additional debt at the same time.
Your lender will review your credit report to determine three things:
1. You had a good credit history prior to the start of your financial hardship.
2. Your derogatory credit occurred after the onset of your financial hardship; and
3. You have re-established a twelve-month perfect payment history for housing payments and major accounts.
Lastly, you must complete a ‘Pre-Purchase Counseling’ course through a HUD approved housing counseling agency at least 30 days before you start the application process. Upon completion of the course, you will receive a certificate of completion that is good for six months. During the course, which takes about an hour, you will work with a certified counselor who will assess your debt and your ability to afford a mortgage payment and explain the features of the mortgage, mortgage insurance and the loan application process.
A true benefit to this program is that your mortgage rate is not affected. The mortgage rates for FHA loans under this program are the same as any other FHA loan. There is no premium added to your interest rate and no additional fees to pay at closing.
If the recession ended up leaving you without a job and a substantial loss of income for six months or more and you ended up having to short sale your home or you went through a foreclosure, bankruptcy or other difficult economic event, you no longer have to wait three years before you can own another home. The Back-to-Work program waives the three year requirement and offers consumers another opportunity for homeownership within as little as twelve months.
If you are ready to buy, Pink Realty is here to help you find your next dream home. If you don’t think you’re ready because your credit needs a bit more work, there is still time and Pink Realty can get you in touch with an FHA approved lender who will help you get your credit where it needs to be. Don’t delay. Call the experts. Call Pink!
