The FHA Back to Work – Extenuating Circumstances program has arrived, providing Americans with the shortest possible path back to home ownership.
It used to be that you would have to wait three years before applying for an FHA loan following a foreclosure, deed-in-lieu, short sale, or bankruptcy. Now, that wait has been shortened to just a year.
The three-year waiting requirement was already the second-shortest wait of all mortgage backers. Only the VA’s two-year waiting requirement was shorter. By comparison, to get a Fannie Mae- or Freddie Mac-backed mortgage, the waiting requirement is seven years.
In order to qualify for the loan, unforeseen events must have caused your household to lose 20 percent or more of its income for at least six months.
Your past credit history must show your inability to pay was brought about by hard times and you have regained your ability to pay.
You must demonstrate a full recovery from economic hardship, complete HUD-approved housing counseling and meet all other FHA requirements.
To get started, contact a mortgage consultant for a housing consultation, which will include a review of your credit history and analysis of your financing options.
FHA Back to Work-Extenuating Circumstances FAQ
The Platinum experts answer your questions about the new program and how it changes the game for prospective homeowners.
What is the FHA? The FHA is the Federal Housing Administration, a wing of the United States Department of Housing and Urban Development (HUD). FHA’s main function is operating as the world’s largest home loan insurer. The FHA insures loans in all 50 states and the District of Columbia.
How does this change affect me? Previously, you had to wait a minimum two to three years following foreclosure — or another event — before you would be eligible to receive an FHA loan. They are now dropping that requirement to one year, provided you qualify for this program.
How do I document I lost 20 percent of my income? You’re going to need one of the following to prove your prior income:
- Federal tax returns
- Written Verification of Employment
Also, if your dip in income was related to seasonal or part-time employment, you must produce two years of records to prove the loss.
How do I prove my credit is back in good standing? Your lender will review your credit report as a part of the loan application process. All your credit accounts are reviewed so that the lender can determine:
- If you had a good credit history prior to the hardship.
- That your ability to pay declined once you fell on hard times.
- You have been back in good standing over the past year.
Who is affected by the “20 percent loss of income”? Is it the household or an individual? The 20 percent loss of income applies to the entire household. For example, if one person in the household loses 20 percent of his or her income, but the total household loss of income is 15 percent, that household does not qualify for this program.
What are the details of the HUD counseling requirement? In order to obtain the FHA Back to Work – Extenuating Circumstances loan, you must complete HUD-approved counseling, which will address the cause of your economic troubles and help you understand actions that can help prevent you falling into hard times again. The counseling typically lasts one hour and can be done in person, over the phone or online.
When does the program end? September 30, 2016.
Some other FHA Back to Work-Extenuating Circumstances facts:
- Modified mortgages are eligible for the program.
- Loans on a payment plan are eligible.
- You can qualify if you are unemployed.
- If applying while in Chapter 13 bankruptcy court, you must have written permission from bankruptcy court.
- You can use unemployment income records to prove your decrease in income.