When do I need the Back to Work Program?
Well, if you have significant derogatory credit in your recent past, such as a foreclosure, short sale, deed in lieu or bankruptcy of either chapter 7 , then you probably realize that there is a waiting period for you to be able to be approved for a mortgage and have it insured by FHA. The waiting periods are as follows....
Chapter 7 Bankruptcy - 2 years from discharge date.
Short Sale, Deed in lieu, foreclosure - 3 years from transfer of deed.
FHA has always had an exception for "circumstances beyond the borrowers control" until the back to work program, this would be the death of a spouse, significant medical issues that precluded the borrower from working. It is possible to get these exceptions approved and in fact in my local branch we have had several approved in 2013, the Back to Work program is essentially a new allowable exception for people that had lost their job or seen a significant reduction in earnings due to circumstances beyond their control.If you fall into this category than you want to keep reading to see if you qualify
How Do I qualify?
There are a few qualifications that must be met in order to make use of the back to work program
- You must be purchasing a home, this program does not apply to refinances or reverse mortgages
- You must be able to document a loss of at least 20% of your income for a period of at least 6 months
- You must complete FHA's standard housing counseling
- You must have re-established a satisfactory credit history for at least 12 months (no late payments)
- You must meet all of FHA's other guidelines for manually underwritten loans.
If you believe you meet all of the conditions outlined above, you should call your mortgage professional and discuss the availability of this program to you.
What's the bottom line?
The bottom line is this new exception can reduce the waiting period after a significant derogatory credit event from 2 or 3 years to 1 year, but as with any exception to any rule in the mortgage industry you can expect to have a loan application heavily scrutinized and a long list of documentation that will need to be provided. w2s or tax returns showing prior earnings and w2s or tax returns showing the earnings after the economic event that reduced your income. Also you will have to provide all of the standard documentation to show that your current levels of income can support the new mortgage. In the end your mortgage professional should review your case and see if it makes sense to attempt to have a mortgage approved using the Back to Work program, if you are close to the end of a standard waiting period it may make sense to wait it out. However the Back to Work program exists to give people a second chance more quickly, if their hardships originated from matters beyond their own control. One instance where this program can be very attractive is with if you have a prior foreclosure. On a foreclosure the clock for the waiting period does not start until the bank transfers the deed of the property into their name, I have seen people come into my office 5 years after a foreclosure, thinking that they should be good based on the typical waiting periods only to find out that their clock hasn't even started because the property is still in their name. Because of situations like this, the waiting period for a foreclosure often results in a period of longer than three years, if you can document a loss of income the Back to Work program can help you get back into a house that you own in a reasonable amount of time.