Last month the FHA relaxed the guidelines and requirements for many potential homebuyers affected by the economic downturn through bankruptcy and/or foreclosure, short sale or deed-in-lieu. It’s called the FHA Back To Work Extenuating Circumstances Program and provides home financing opportunities.
So what does all of this mean to you?
First, you should understand what a FHA Mortgage Is
FHA Mortgages provide potential homebuyers the opportunity to purchase a home with a low down payment, and unlike conventional mortgages, the money for the down payment does not have to be verified as the buyer’s money; it can be a gift to the home buyer from outside sources. And the credit qualifications for a FHA mortgage are often lower than those required for a conventional mortgage.
On August 15, 2013, the FHA offered new guidelines for potential homebuyers who “experienced periods of financial difficulty due to extenuating circumstances.” Basically, they modified the waiting period to apply for a new mortgage, offering you a “second chance”. Instead of taking anywhere from 2 to 7 years to get back into a house, this program can help potential homebuyers get into a new home in as quickly as a year.
Who is eligible for the FHA Back To Work Loan?
You may be eligible for this new program if you experienced:
- Pre-foreclosure sales
- Short sales
- Chapter 7 bankruptcy
- Chapter 13 bankruptcy
- Loan modification
- Forbearance agreements
In the past, the waiting period was at least three years, and with this program, it will only be one year. But there are certain requirements.
Did you experience any of the following?
- Lost your job over 6 months ago and/or had an income reduction over 20%
- Bankruptcy, foreclosure, short sale or deed-in-lieu as a result of an Economic Event
In the last year, have you
- Maintained employment for the last 12 months
- Paid your bills on time
- Re-established credit
- Improved your credit score to a middle score of 640
In addition, lenders will be looking at certain items to determine if you are eligible for this program. Some specifics include:
- Your credit history before the economic event
- A decline in your credit score after the onset of the economic event
- Re-establishment of a good credit history with perfect (on-time) payments for 12 months on major accounts
Homeownership counseling must be attended and completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application. The counseling must be provided by an approved agency. A list of agencies can be obtained online at http://www.hud.gov/ or by calling (800) 569-4287.
Some basic definitions from the FHA:
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.
We strongly recommend that you meet with an FHA approved lender knowledgeable about this program to determine if you are eligible, and what your next steps are. The sooner you start, the sooner you may be able to purchase a new home. And while mortgage rates are still at historical lows, you might want to find out if you are eligible to buy that home you’ve been looking at. If you would like us to connect you with lenders, please contact us.