The FHA Back-to-Work Program is still in full swing until September of this year. This means that anyone that suffered a bankruptcy or foreclosure as a result of a job loss, serious illness, or other extenuating circumstances may be able to get back into home ownership sooner than they thought with this program. The waiting period for any type of negative financial event is 12 months as long as the borrower can prove that they have completely recovered from the event. Recovery is proven in several ways, but the one thing that the FHA and your lender will be concerned with the most is your credit. You need to have satisfactory credit in order to qualify for the program.
The lender will start the process by looking at your credit history. They are most concerned with the date of the economic loss (filing a bankruptcy or losing your home) and how you have recovered since then. They will be most concerned with the last 12 months as you cannot have any late housing or other installment debt payments in that time. If you have minor revolving debt issues, they may be acceptable, but anything major, such as more than one 30-day late on one account or multiple revolving accounts reporting late, you might not be eligible.
If you have a housing history right now, meaning that you did not lose your home and still pay a mortgage, you cannot have any late payments in the previous 12 months. You may have had late payments prior to that, however, as long as they are tied into the economic event. You must then show how you became current on the loan, whether it was a loan modification or you got a new job and were able to get your payments back up-to-date.
No Credit History
If you do not have a credit history after the incident occurred, the lender can use non-traditional credit to qualify you. This means the lender can use insurance payments, rent, or even utility payments to qualify you for the program. The history must total the last 12 months and all payments must have been made on time. Your credit history that does exist also cannot contain any collections unless they are of medical nature. In some cases, you can get an exception if you have one late payment in the last 12 months, but most lenders are pretty strict about this since you do not have traditional credit and you have a negative economic event in y our history.
Documenting your Income
In addition to verifying your credit history, your lender will need to confirm the loss of income you experienced that caused the economic event. This means you must be able to show a decrease in your income of at least 20 percent that lasted for at least six months. The job loss or downsizing can be proven with a Verification of Employment from your previous employer that states the date of termination of decrease in income. If the company does not exist any longer, some type of public documentation showing the closing of the business will be necessary to qualify you for the FHA Back-to-Work Program.
The lender will also need to determine the amount of your income prior to the economic event to determine that you did lose at least 20 percent of your income. This can be done with a Verification of Employment if your employer is still in business as well as W-2s or tax returns.
Once it is determined that you lost at least 20 percent of your income, the lender then needs to document your current income to see that it has increased enough to cover your debts. This is done with the traditional methods, either your current paystubs and W-2s or your tax returns.
Evaluating your Credit
Once the lender evaluates your income and determines exactly when you had the decrease in income, he can then compare that to your credit report. All delinquencies, collections, and negative credit events will be compared to the dates that your income decreased. If any of the negative credit events occurred outside of the period in which you had a decrease in income, you will not be eligible for the program. Everything must be able to be tied into the one specific period; otherwise, it is deemed as an irresponsible use of your funds for which you would not be applicable for this program.
If you suffered a negative economic event, the FHA Back-to-Work Program is a great way to get back into home ownership. Even if you never had an FHA loan before, you will find that it is an affordable program with low rates and low closing costs. You should be prepared to pay monthly mortgage insurance on your loan for the life of the loan, but that is a small price to pay if you only have to wait 12 months after a bankruptcy or foreclosure to own a home again.