So you recently filed for bankruptcy, or had a foreclosure and now you want to buy a home.
You can’t, right?…
Actually you can with the FHA Back to Work Program.
If you qualify for the back to work loan program, you can get a mortgage loan just 12 months after a bankruptcy, foreclosure, or short sale.
What is the FHA Back to Work Program
The FHA back to work program was created by HUD to help consumers buy a home who had an unforeseen financial hardship but have since got back on their feet.
The waiting period for borrowers with a bankruptcy, foreclosure, or short sale is 36 months for FHA and conventional loans. The Back to Work program reduces the waiting period from 36 months to just 12 months. You must be able to show there were extenuating circumstances that led to the economic event, such as a reduction in income or a loss of a job.
Who Qualifies for the Back to Work Program?
In order to qualify you must have had extenuating circumstances that caused your financial hardship. A loss of a job, household income by at least 25%, or medical reasons.
If one of the first three statements and all of the last three statements below apply to you, you may qualify
- Loss of income (25%+ reduction in household income)
- Laid off or fired
- Medical condition or disability
- Re-established positive payment history
- Have recovered from the economic event
- Are financially stable
You will need to have re-established a positive payment history since the economic event. This means that you have timely payments on any credit account and no derogatory items on your report. Any open credit or loan accounts must show no late payments for the past 12 months.
If you have a mortgage you must be able to show 12 months of on time payments.
You may be eligible if you have gone through these Economic events:
- Chapter 7 or 13 bankruptcy
- Short Sales
- Short sales
- Loan modifications
- Forbearance agreement
FHA Back To Work Extenuating Circumstances Program
HUD created the FHA Back to Work program because they understand if there were extenuating circumstances that lead to a bankruptcy, or foreclosure you may have recovered. By reducing the waiting period for buyers who qualify, more consumers can become home owners.
Here is an example of a situation that qualifies for the Back to Work program and what the lender is looking for.
John is an accountant, has been at the same company for several years making good money. One day John is told he is being laid off. He is unable to find a new job quickly and falls behind on all of his payment obligations, including his mortgage. He is forced to file for bankruptcy because he cannot afford to pay. Shortly after the bankruptcy he finds a new accounting position with good pay.
He’s able to get current on his mortgage and he gets a secured credit card to help re-establish positive payment history. A year later John apples for a mortgage. He is able to prove he was laid off and that is why he filed bankruptcy.
John’s mortgage payments and credit card payments have all been on time for the last year. He is a perfect candidate for the Back-to-Work Program.
What are FHA Loans?
The Federal Housing Administration was created 80 years ago to help more consumers become homeowners. In those days getting a home loan was an incredible feat. You needed excellent credit, a great paying job, and a large down payment as high as 50%.
The FHA doesn’t fund the home loan, they insure the mortgage in the event the borrower defaults on the loan. If they do, the FHA will pay the lender what they are owed and the property will become a HUD home. This greatly reduces the risk of providing home loans so lenders have much more flexible qualifying requirements.
FHA Loans for People with Bad Credit
The FHA will insure a mortgage when a borrower have a 500-579 credit score with 10% down. However, closing on a mortgage with a credit score in this range is very difficult. It is highly recommended to work on improving your credit score before applying for a mortgage.
If you have at least a 580 credit score and just a 3.5% down payment you can qualify for an FHA mortgage. The odds of being approved with a 580 credit score are higher than if you have a score under 580.