The FHA Back to Work program is like a second chance program for borrowers that ran into credit troubles in their recent past. It mostly affects borrowers that have a foreclosure or bankruptcy in their past. The typical FHA guidelines require borrowers with either of these credit issues in their past to wait at least 2 years before applying for an FHA loan again. With the Back to Work Program, however; the wait it decreased to just 12 months after the date of discharge of the bankruptcy or the sale date of the foreclosed home. In order to qualify, however, you have to be able to prove that you were forced to file for bankruptcy or stop making your mortgage payments because of a one-time circumstance that was outside of your control. If you can prove that, you may be eligible for the program, but in order to fully qualify, you must prove that you underwent housing counseling.
What is Housing Counseling?
Housing counseling is a program you must go through in order to ensure that you understand what you are getting into when you take out a new mortgage. Since you are a “risky” borrower since you have a foreclosure or bankruptcy in your recent past, the lender needs to know that you fully understand what you are getting yourself into. Whether or not you were a part of the group of people that took out mortgages based on “stated income or assets” or even a no income, no asset loan or you just fell on hard times despite the fact that you had a fully documented loan, you could benefit from counseling.
Housing counseling is a one-on-one session where the counselor goes over the circumstances of your negative economic event and how you can prevent them from occurring. The counselor will also go over the terms of the new loan you are about to take on and help you understand the full ramifications of the loan. This way you are fully informed and cannot feign ignorance in the future if the payments become harder to make. You can ask the counselor any questions you have during the session so that you fully understand the mortgage process and what you are getting yourself into. You do not want to jump into another loan without knowing what you can and cannot afford.
How do you Prove Housing Counseling?
The counseling agency that provides your housing counseling will provide you with a letter on their letterhead stating that you underwent the counseling. It will also the tax identification number for the agency and the date you completed the counseling. It must also state that all Back to Work Program requirements for housing counseling were met. Both you and the counselor must also sign the document. This document helps the lender move forward with your FHA Back to Work Program loan. But, in addition, you will need to provide the following documents:
- A disclosure that states the relationship that exists between you and the counselor, if any relationship exists
- A statement that demonstrates that you are not obligated to take a new mortgage under any circumstances
- A statement that showcases your understanding that you are not qualified for the Back to Work Program simply because you underwent counseling; you still have to qualify financially
The Other Requirements for the FHA Back to Work Program
Once you undergo housing counseling, you have a better chance of getting approved for the FHA Back to Work Program, but it is not a guarantee. In addition to having a negative credit history that was a one-time occurrence, you must also prove the following things:
- You have recovered from the negative event. This means that you have reestablished your credit and that you have made all payments on time since recovering from the negative economic event. This means having good credit and proof of timely payments of rent, utilities, insurance, or tuition.
- You can prove the reason for the negative economic event, such as a job loss or sudden illness and that it was outside of your control.
- You can prove that you had no way to prevent the negative economic event no matter what you did.
- You can prove that you lost at least 20 percent of your income that forced your negative economic event.
- You can prove that your income has since increased after the bankruptcy or foreclosure.
The FHA Back to Work Program helps borrowers that would otherwise be unable to purchase a home become homeowners again. The FHA realizes that not every negative economic situation is a result of financial irresponsibility; sometimes it is because of issues that are outside of our control, which is why they provide a second chance. If your company downsized or you lost your job, that is not your wrongdoing. Even if you became ill or injured and were unable to work, you still had no control over it – the FHA offers you a chance to start over.
It might seem like an inconvenience or even unfair to have to undergo housing counseling prior to getting the FHA Back to Work Program approval, but if it means getting you into home ownership again, it is worth it. The counseling, when done in person, is only one hour of your time. You can look at it as a way to educate yourself on your finances and how to overcome any issues you might have experienced. It is often hard to bounce back from a bankruptcy or foreclosure, which is why the FHA requires the counseling to ensure that you really understand what you are getting yourself into. Look at the housing counseling as a time to evaluate your financial circumstances and to plan for the future – when you look at it that way, you can go in with a positive outlook and get the most out of the session, including the ability to become a homeowner again.