FHA Back To Work Loan Program


By Joseph Small

Back To Work ProgramRecently, I mentioned in a previous article about HUD’s announcement of the FHA “Back to Work” loan program and how this will help a lot of homebuyers in cities such as Tucson and Phoenix Arizona. After getting numerous calls, as well as more details from HUD, I thought that I would write a more descriptive article on this great new FHA loan program.

The recent announcement from HUD in their Mortgagee Letter 2013-26 that homebuyers whom lost their homes through a foreclosure, pre-foreclosure, short sale or had a bankruptcy may be eligible to finance a home again in as little as 12 months is a shot in the arm for a lot of Tucson and Phoenix area homebuyers. This is a significant reduction from the current 2 years out on a bankruptcy and 3 years out on a foreclosure.

In the Mortgagee Letter, released on August 15, HUD provided guidelines under “Back to Work – Extenuating Circumstances”, which is meant to ease the path for home ownership for many homebuyers whom have had a hardship through no fault on their own.

Commonly referred to as Boomerang Homebuyers, these buyers will need to document that they had a decline in household income of 20% or more for at least six months. As a result of this decrease in income, they must further document that they were unable to make their payments due to this specific economic event.

Oftentimes, as some of these boomerang homebuyers have experienced, the bankruptcy and simultaneous foreclosure were not recorded at the same time. In some cases where the property did not have a deed transfer back into the lender’s name at the same time of bankruptcy, put an unexpected twist – a long wait time to meet HUD’s required a 36 month waiting period starting at the time the deed was transferred back to the lender. In a few cases, this process has taken months or even years after the discharge of bankruptcy. So the 12 month wait time to apply for an FHA home loan is huge!

FHA Back to Work – Extenuating Circumstances

Extenuating circumstances for the purpose of these guidelines are as follows. The borrower(s) must have experienced a decline in income of 20% or more for a period of at least six months. This could have been due to a job loss or a loss of income tied to earnings like commissions or other customary bonus or incentive income or reduced work hours. Of course the other important piece of the puzzle is that this drop in income must be tied directly to a specific economic event that was beyond their control.

The Rebound

With any situation of extenuating circumstances, a boomerang homebuyer must be able to document that the event was isolated in nature and not likely to reoccur again in the future. The borrower must also be able to document that they have regained economic stability through timely payments for a minimum of 12 months – a rebound.

The timely payment history will include rental/mortgage payments, installment payments, and/or revolving payments for the 12 months preceding the mortgage application. There also should not be any new collection accounts.

In addition to re-establishing acceptable credit, the borrower(s) will be required to take and complete HUD approved Housing Counseling. This housing counseling will have to be completed 30-days prior to loan application. Find approved counselors here: HUD Approved Housing Counseling Agencies

Eligibility Requirements for Documenting Loss of Income

In the event of a loss in employment, the lender will need to document the event by a written Verification of Employment evidencing the termination date, public information documenting the closure of the business if applicable and/or documentation of unemployment income.

The lender will also need to substantiate the loss of income through the verification of tax returns, W-2s and tax transcripts.

Important Back to Work Definitions

HUD announced several key terms that must be reviewed in accordance with this program.

  • Economic Event: an occurrence beyond the borrowers control that resulted in a Loss of Employment, Loss of Income or a combination of both which resulted in a loss of Household Income of 20% or more for a period of six or more months.
  • Onset of Economic Event: the month of the start of or loss of income.
  • Recovery from an Economic Event: the re-establishment of acceptable or satisfactory credit. Satisfactory Credit equates to no derogatory credit for any mortgaged or leased property in the 12 months preceding the mortgage application. This also includes any installment or revolving debt for the same period.
  • Borrower: “Borrower” includes all parties including primary and/or co-borrower as listed on the loan application.
  • Borrower Household Income: the income of all parties on the application or Household Members as listed from the previous Economic Event and derogatory credit.
  • Housing Counseling: Counseling from a HUD-approved housing counseling agency related to home ownership and meets acceptable requirements.
  • Other Requirements and Information

    HUD establishes a base line for lenders to underwrite and approve mortgage applications. Some lenders may choose to require baseline standards that exceed the minimum guidelines listed here with regards to time from short sale, foreclosure or bankruptcy.

    Lenders may also choose to enact additional overlays with requirements to evaluation acceptable credit regarding payment history, collection accounts and/or judgments.

    In the event a prior defaulted mortgage was endorsed by FHA, the lender will need to request a waiver which may require additional time for processing. For anyone this pertains to, they would be wise to alert the new lender to this as soon as possible in the loan process.

    Boomerang homebuyers whose prior hardship was economically driven should be excited by this newly announced FHA loan program. For many, it is now recognized the worst is behind them and the time to buy a new home is here – today.

    If you feel that you might qualify or have any questions regarding this new FHA Back to Work mortgage program, then please give us a call.

    520-303-5620 (Tucson) or 480-788-9221 (Phoenix).

    Note: All loans subject to underwriter approval; terms and conditions may apply. Subject to change without notice.
    By Joseph Small

    Joseph Small and his Team at Guild Mortgage Co. helps Tucson and Phoenix Homeowners with all their FHA home mortgage loan needs. Give them a call today! Also proudly serving Sierra Vista, Green Valley, Sahuarita and Nogales Arizona.
    Give them a call today! Maybe one day you too will say, “Joe’s My Lender!”

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