The Federal Housing Administration (FHA) announced the Back to Work Program on August 15, 2013. This program is great news for you if your damaged credit history is a result of the recession.
These are the 5 things you need to know about the “Back to Work” Program.
Let’s dive right in…
1. You No Longer Have a 2-3 Year Waiting Period for an FHA Mortgage
If you experienced an “economic event” like a:
- Pre-foreclosure Sale
- Short Sale
- Deed-in-Lieu
- Loan Modification
- Bankruptcy
- Foreclosure
- Forbearance Agreement
You would normally have to wait 2-3 years before you could qualify for an FHA mortgage. You can now qualify for an FHA loan after just 12 short months. Here’s why:
“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.”
2. They are “Allowing for the Consideration of Borrowers Who’ve Experienced an Economic Event”
The above is quoted from the announcement of the new FHA program. Here’s more:
“…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.”
3. You Must Show That Your Household Income Declined by 20% or More
This 20% decline in income has to be for a period of at least 6 months and coincide with the above “economic event”.
4. You Must Complete Housing Counseling
This is a condition of using the Back to Work Program and is strictly enforced. Here is more from FHA’s announcement regarding 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.”
Further reading explains the minimum requirement for counseling is 1 hour for each buyer and counseling can be conducted by phone or even the internet. The counseling must also address your situation specifically, see here:
“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).”
5. Minimum Credit Score Requirements
Mortgage applicants must show a minimum credit score of 580 to take advantage of the minimum down payment of 3.5% of your home purchase. FHA actually accepts a minimum credit score of 500, but the required down payment is 10% of your home purchase. Keep in mind, these are FHA’s minimum credit scores and you still need to find a mortgage lender who accepts a score in this range. Read more about FHA on Wikipedia.
Tips for Getting Started
- Check your credit report and score before you speak to a lender about the FHA Back To Work Program to give yourself time to fix any mistakes you find. You can check your score here: www.rentuntilyouown.com/creditscore
- Speak to a lender. You can visit someone like LendingTree and fill out their simple form online to have a lender contact you. You can visit the correct LendingTree form here:
www.rentuntilyouown.com/lendingtree
- Create an action plan based on your lender’s feedback. Even if you don’t qualify right away, the Back To Work Program makes your timeline to home ownership much shorter!
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