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FHA Is Going Back to Work

FHA's Back to Work Directive Means Going Back Home

FHA’s Back to Work Directive Means Going Back Home

Orange County, CA – If you’ve had a bankruptcy, short sale, or foreclosure in the last 2-7 years, you may be very glad to hear the latest news from the Federal Housing Administration (FHA). They have issued a change of directive called “Back to Work” that allows people with these credit impairments to qualify for a new FHA loan in as little as 12 months. Let’s dive right in:

“Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected.  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.  

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: 

  1. certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
  2. the borrower has demonstrated full recovery from the event; and,
  3. the borrower has completed housing counseling.”

Because that’s slightly unclear, what they’re saying is that even if you’ve had financial difficulties, you can still receive an FHA loan provided that you can prove that your difficulties were as a result of events beyond your control, that you’ve recovered from those difficulties, and that you’ve had ‘housing counseling’. Let’s get a little further into what those mean.

Credit Impairments due to Events Beyond the Borrower’s Control

This simply means that your household income was reduced by at least 20% for a period of at least 6 months and there wasn’t anything you could do about it.

Full Recovery From the Event

This means that you must have had ‘satisfactory credit’ for at least 12 months. That, in turn, means that your credit history doesn’t have any late housing or installment debt repayments (i.e. you pay all your bills on time), and that if you have a mortgage currently, it’s been paid every month for the past 12 months. This is the important part because, before this change, any bankruptcy kept you FHA-ineligible for two years — and a short sale or foreclosure kept you off the list for a minimum of three years depending on the circumstances. With the Back to Work changes, anyone waiting for their bankruptcy, short sale, or foreclosure to clear may have a lot less time to wait…as long as they’ve been ‘good’ since then.

Housing Counseling

This means that you’ve had an hour-long sit-down with a Housing and Urban Development (HUD)-approved counseling agency. If you ask the HUD, they’ll set you up with someone. You have to complete this counseling at least 30 days, but no more than 6 months, before applying for an FHA loan or it doesn’t count. If you have trouble with transportation, the counseling can be completed via telephone or online as well. These steps are required to be eligible for the FHA Back to Work program.

This is a very welcome change on the part of the FHA, because there are literally millions of Americans who fell into the foreclosure/short sale trap when the economy collapsed. Many of them are still within that three-year waiting period. If you think you might qualify for an FHA loan under the new Back to Work rules, give us a call. We’ll help you through the process.

Scott Storace

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