There is new hope for many Americans who lost their homes to foreclosures and short sales in recent years – and are ready to buy a home again. The U.S. Department of Housing and Urban Development (HUD) recently introduced new guidelines for Federal Housing Administration (FHA) loans, essentially making it easier for eligible borrowers who have a mortgage default on their record to purchase a home.
Given that millions of homeowners have lost their homes in the last few years alone, this is very good news for a vast number of Americans. The FHA Back to Work program allows qualifying borrowers who had a short sale, foreclosure, or a bankruptcy due to extenuating economic circumstances (reduction in income or loss of employment) to potentially obtain an FHA purchase mortgage – without needing to adhere to the three-year waiting period normally required by the FHA.
The Back to Work program recognizes that for many people, their economic status was changed by factors outside of their control and that they have worked toward getting back on more sound financial footing. To participate in the program and have the standard three-year waiting period reduced, borrowers must meet specific eligibility criteria and other requirements to qualify for a mortgage under the new program, including:
- Have a bankruptcy, foreclosure, deed-in-lieu, short sale or delinquencies discharged, for at least 12 months.
- Be able to document the financial hardship that lead to the mortgage default (a written job termination notice or other documentation of job loss, and W2s and/or signed tax returns to verify loss of income).
- Have had at least a 20% reduction in household income for at least 6 months prior to their loan default. (Under the HUD program, household income is defined as the income of a borrower and co-borrower that was used to obtain the mortgage that went into default.)
- Have re-established good, on-time credit for at least 12 months after the financial event, via new or re-established tradelines (credit accounts).
Homeownership counseling is a key first step
In addition to meeting eligibility criteria, borrowers will have to receive counseling from an approved Housing and Urban Developing (HUD) counseling agency at least 30 days before beginning a loan application. A minimum of one hour of counseling is required. It must specifically address what caused the financial hardship and what can be done to reduce the possibility of another mortgage default.
(Courtesy of Kyle Pugel of Coldwell Banker Home Loans)