FHA’s “Back to Work – Extenuating Circumstances Program”

FHA-Loan-After-Foreclosure1Great news!!  The Federal Housing Administration has moved to relax its guidelines for borrowers who “experienced periods of financial difficulty due to extenuating circumstances”.  Dubbed the “Back to Work – Extenuating Circumstances Program”, FHA has now removed the familiar waiting periods that typically followed a derogatory credit event.

Ex-Homeowners who lost their homes to a short-sale, deed-in-lieu, foreclosure, and/or had to claim bankruptcy because of an extenuating circumstance, or circumstances, are now eligible to purchase a new home in as little as 12 months after one or more of these events, and FHA has confirmed that they will waive their waiting requirements of 3 years for a foreclosure related, short-sale and deed-in-lieu event, and 2 years for someone who discharged their debts via a bankruptcy.

You may be eligible to qualify for the “Back to Work” exception if:

  • You experienced a 20% loss of household income for a minimum 6 month period
  • Your loss of income created an economic event such as bankruptcy, foreclosure, short sale, or loan modification.
  • You can show a (timing) correlation between the loss of income and the hardship
  • You can show that you have recovered from your hardship with 12 months of timely payments

As defined from the U.S. Department of Housing Development, 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 (as defined on page 5 of ML 2013-26) for a minimum of twelve (12) months.”

buy-home-again-after-foreclosure-californiaIn order to qualify for the back to work exception, you have to show that the financial hardship is in the past and not likely to occur again. This can be proven if:

  • Your credit history is clear of late housing or installment debt payments, and major derogatory credit issues on revolving accounts;
  • Any open mortgage is current and shows twelve (12) months satisfactory payment history.  Mortgages that have been brought current through loan modifications, which may be “temporary” or “permanent”  so long as all payments have been documented as being received in accordance with the modification agreement(s); and
  • You meet all other HUD requirements for qualifying for an FHA insured mortgage

When evaluating non-traditional credit history, the lender may deem a borrower to have Satisfactory Credit if:

  • No history of delinquency on rental housing payments in the past twelve (12) months
  • No more than one thirty (30) day delinquency on payments due to other creditors in the past twelve (12) months
  • No collection accounts/court records reporting (other than medical or identity theft) in the past twelve (12) months

Talk with your local lender to see if you qualify for this exception!

Hampton Roads Real-e-statement is written by Alyssa Godwin, a Realtor with Liz Moore and Associates. For questions regarding buying or selling contact Alyssa at 757-329-6161 or alyssagodwin@lizmoore.com. You can also find Alyssa on Facebook or on the web at www.lizmoore.com/alyssagodwin.