Back To Work
New Program available for people who had a foreclosure or short sale that was caused by a drop in income. If you lost 20% or more of your household income and that resulted in a foreclosure or short sale, then you may be now eligible to buy a new home just 12 months after foreclosure with as little as 3.5% down.
HUD has issued new guidelines for their new program called “Back to work”
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. (see below for more details)
This new program will allow for the following derogatory events:
Chapter 7 Bankruptcy – 12 months after discharge is ok
Chapter 13 Bankruptcy – 12 months after discharge is ok
Short Sale – 12 months after sale date is ok
Foreclosure – 12 months after sale date is ok
It is important to note that there needs to be good satisfactory credit for at least 12 consecutive months following the foreclosure to qualify. This includes:
- No history of delinquency on rental housing payments; and
- No more than one thirty (30) days delinquency on payments due to other creditors; and
- No collection accounts/court records reporting (other than medical and/or identity theft).
To qualify, you must be able to document the Loss of Employment by obtaining:
- Signed tax returns
- proof of income loss from your employer or previous employer
- Proof you went from full time work to part time work.
This is very exciting for people who were previously precluded from purchasing a home during the 36 month waiting period after foreclosure for FHA. This is great news for the housing market as it will create a very large immediate demand. There are over 1.5 Million people who may now be suddenly eligible to buy again. With previous guidelines, they would have had to wait until next year.
With rates still very low, you can lock in a 30 year fixed rate in the low 4% range as of the date of this posting.
Satisfactory Housing Counseling: Requirements
To qualify for purposes of establishing Satisfactory Credit following an Economic Event, participants in this FHA initiative must:
- receive homeownership counseling or a combination of homeownership education and counseling provided that each participant receives, at a minimum, one hour of one-on-one counseling from HUD-approved housing counseling agencies, as defined at 24 C.F.R. §214.100. The counseling must address the cause of the economic event and the actions taken to overcome the economic event and reduce the likelihood of reoccurrence. The housing education may be provided by HUD-approved housing counseling agencies, state housing finance agencies, approved intermediaries or their sub-grantees, or through an on-line course, and
- be completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application to a lender, as application is defined in Regulation X, implementing the Real Estate Settlement Procedures Act, 24 C.F.R. §3500.2(b).
- Housing counseling may be conducted in person, via telephone, via internet, or other methods approved by HUD, and mutually agreed upon by the borrower and housing counseling agency, as provided for in the regulations at 24 CFR §214.300 and in the Housing Counseling Handbook.