Lending agencies are offering shorter waiting periods through the “Back to Work” home loan
On Aug. 15 of last year, the Federal Housing Administration (FHA) released Mortgagee Letter 2013-26, stating that borrowers who have experienced an unfortunate financial event may now begin a new mortgage loan only twelve months after losing a home. Previously, families who faced financial crises had to wait two to three years to start a new loan application.
“FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances,” the letter stated.
The “Back to Work — Extenuating Circumstances” program, which began on Aug. 15 after the release of the mortgagee letter, will run through Sept. 30, 2016.
Through the Back to Work home loan, borrowers may put down only 3.5 percent on a mortgage with no premiums nor fees at closing. Mortgage rates are equivalent to the rates of any other FHA loan.
Not everyone may participate in the program. A prospective family must be facing an economic event, which the FHA defines as “any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.”
This means that families with financial crises like deed-in-lieu, bankruptcy, foreclosure, short sale, loan modification and forbearance agreement are eligible to apply if they have experienced a significant reduction in income from everyone in the borrower’s household.
Back to Work mortgage lenders must be able to verify a loss of employment or loss of business rom “Back to Work” borrowers through a written document.
The FHA also requires families to be fully recovering and verify proof of satisfactory credit. The borrower’s credit history must be clear of late housing, installment debt payments and delinquency. Borrowers with credit scores below 500 are not eligible. However, those with no credit score are allowed to participate.
To continue boosting families’ credit scores, the FHA requires that “Back to Work” mortgage lenders ensure borrowers take part in one hour of one-on-one housing counseling in person, online or by phone.
Mortgagee Letter 2013-26 states, “Housing counseling is an important resource for both first-time home buyers and repeat home owners.” “Back to Work” home loan counseling must review the cause of the family’s financial crisis. For eligibility, participants must complete a minimum of 30 days but not beyond six months prior to submitting a new loan application.
Housing counseling helps borrowers better understand their home loan options and obligations, as well as help assist borrowers in the creation of a budget.