FHA Back To Work Program Waives Foreclosure, Bankruptcy, And Short Sale Waiting Periods

The FHA “Back To Work” Program Is Officially Released

The minimum standards of the FHA mortgage guidelines are straight-forward.  Some of the more well-known rules require mortgage applicants to show a minimum credit score of 500; to make a down-payment of at least 3.5% on a purchase; and, to verify income via W-2 or federal tax returns.

The guidelines also include such arcane topics as U.S. citizenship requirements for borrowers; relocation rules for trailing homes and income; and, minimum standards for condominiums and co-ops.

Loans failing to meet FHA mortgage guidelines do not get insured and the Federal Housing Administration has been steadily tightening its requirements since last decade’s housing downturn.

On August 15, 2013, though, the Federal Housing Administration moved to modify its guidelines for borrowers who “experienced periods of financial difficulty due to extenuating circumstances”.  This program has been named the “Back To Work – Extenuating Circumstances Program.”   The FHA modified the past waiting period that were required for derogatory credit history.

If you’ve experienced any of the following financial due to severe reduction in income due to a job loss or other circumstances resulting in reduced Household Income, you may be program-eligible :

Pre-foreclosure sales
Short sales
Deed-in-lieu
Foreclosure
Chapter 7 bankruptcy
Chapter 13 bankruptcy
Loan modification
Forbearance agreements

The FHA realizes 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.   FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.

As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can 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; and,
  • the borrower has completed housing counseling.

Housing counseling is an important resource for both first-time home buyers and repeat home owners.  Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower.

For more information, contact Ken & Melody Kramer.

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