The rules keep changing but the time has come for many boomerang buyers to get back into home ownership. More than 4.7 million homeowners are estimated to have lost their home to foreclosures or short sales since 2007. Through the “Back to Work – Extenuating Circumstances” program, the FHA has relaxed its guidelines for borrowers who “experienced periods of financial difficulty due to extenuating circumstances”. The program waives the three year waiting requirement after experiencing a foreclosure, short sale, or deed-in-lieu of foreclosure. The waiting period can be as short as 12 months but other requirements must be met.
Others may qualify also. If a potential buyer experienced any of the following financial difficulties, he or she may be program-eligible:
One of the major requirements is that the applicant must be able to document that the financial hardship resulted in at least a 20% reduction of household income for at least 6 months. Household income is defined as that of the borrower and any co-borrower. Documentation can take the form of federal tax returns, W-2s, a written Verification of Employment evidencing prior income, pay stubs, unemployment income receipts, or possibly something else.
Another major hurdle is that the buyer must be able to show that they have fully recovered from the negative financial event. Basically, this means having a positive credit report for the past 12 months. The buyer must show good credit history prior to the negative financial event, that his or her derogatory credit occurred after the onset of the negative financial event, and, that he or she has re-established a 12-month history of perfect payment history on major accounts. Minor delinquencies are allowed on revolving accounts.
Potential buyers must also participate is home ownership counseling. The typical single session lasts about one hour. It can be online, in-person, or via telephone. According to the FHA, the purpose of the counseling is to enable borrowers to better understand their loan options and obligations and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits.
Credit scores below 500 will not qualify. However, people without any credit score can still qualify. Those still in chapter 13 bankruptcy can qualify with written permission from the bankruptcy court. A potential borrower cannot have any rental housing delinquencies on their credit history and no more than one delinquency to other creditors that was more than 30 days past due. However, negative credit events are acceptable for medical bills and identification theft.
The Back to Work program can be used by both repeat home buyers and first time home buyers that are having trouble qualifying for mortgages because of a negative financial event. Those wishing to make use of this program may need to shop around for a lender because not all lenders are participating in the program.
Given that most of the rental market is at historic highs and rents continue going up, home ownership in much of the country can actually be a cost savings move by many. Considering that the last economic downturn cycle began in 2007, many of those affected have likely now recovered financially and can meet the requirements of this FHA program.
The Back to Work program runs through September 30, 2016 by which time 500,000 people are expected to qualify. Those qualifying can obtain loans for as little as a 3.5% down payment.
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