The Documents You Need For The New Back to Work Lending Program

What you will need to prove before applying for the “Back to Work” loan

Preparing to rebound from a financial crisis can be intimidating, especially if multiple lending agencies have already turned you away. A complex loan process is the last issue a recovering family wants to deal with.

Luckily, the new Back to Work lending program, launched this past summer, was designed for families who have faced financial hardships. Attaining a new home loan has never been easier for families who struggled with past economic events. Here is a guide that will help you become better prepared to apply for the Back to Work loan.

1. Proof of an economic event

The Federal Housing Administration (FHA) describes an economic event as “any occurrence beyond a borrower’s control that results in a 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.”

A lender must obtain a Verification of Employment (VOE) that shows evidence of a termination date. If that isn’t applicable, the lender must obtain another document that publicly shows evidence of a business’ closure. The borrower should also provide a receipt that shows unemployment income, a W-2 form that shows prior income or signed tax returns.

2. Proof of full recovery

Prospective borrowers should also be able to provide a credit history report that is current and has remained clean for at least 12 months. The history should be clear of late housing, installment debt payments, delinquency and other derogatory credit issues. Borrowers with no credit history remain eligible, but borrowers with scores below 500 are not accepted.

The program is designed to provide families with a brighter financial outlook, but only if they can prove they will stay on track with payments and a steady job. If the borrower shows any indication that there is an inability to handle debt or manage financial obligations, there will not be acceptance into the program because full recovery is yet to be achieved.

3. Proof of housing counseling

“Back to Work” participants are required to attend at least one hour of one-on-one housing counseling with a Housing and Urban Development-approved agency. Through providing advice, counseling better prepares borrowers for future financial shocks. Housing experts guide borrowers in the creation and assessment of a household budget and teach them how to avoid scams.

Counseling must be completed at least 30 days, but no more than six months prior to submitting a new loan application. Although most people typically frown upon the term “counseling,” it is a positive process that gives rebounding borrowers more financial confidence. It also gives lending agencies confidence that your family is a risk worth taking.

If you are able to prove you have faced a past economic event, made a full recovery and attended housing counseling, talk to a lending agency that provides the “Back to Work” program. The program runs through Sept. of 2016.

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Preparing for a New Home Loan

Get ready for the “Back to Work” program with these easy steps

Applying for a new mortgage after a financial crisis isn’t as intimidating as it may seem. After taking a few steps to prepare, you will be ready to speak with a “Back to Work” lender confidently.

Check out your credit report

According to a survey conducted by the National Association of State Public Interest Research Groups, 79 percent of all credit reports hold incorrect information. It’s more than likely that your credit report has errors. After receiving a copy of your report, go through each item to ensure that the information is correct. In particular, look for late payments that were actually paid on time. Contact the credit bureau that reported erroneous information. They are required by law to fix any errors pointed out to them, which in turn will lead to a boost in your credit score.

The “Back to Work” program requires that each participant has a 12-month credit history report that is clear of late housing, installment debt payments, delinquency and other derogatory credit issues. Borrowers with no credit score whatsoever remain eligible. Speak with a housing counselor to determine other ways your credit could get a boost before you apply for a new home-buyer loan.

Create a household budget

The FHA requires that each “Back to Work” borrower completes one hour of housing counseling at least 30 days, but not more than six months prior to submitting a new home loan application. During which, a housing expert will guide you through how to create and assess a household budget. A budget is an easy way to ensure that you will be able to pay your mortgage back on time while simultaneously keeping up with other expenses. It’s important that each family member follows and records spending in the budget.

Your counselor will teach you other great financial tips as well, such as how to avoid scams and how to better prepare for future financial shocks. Counseling is a great opportunity to ask questions about how new home mortgage loans affect the financial lives of families. A list of agencies approved by the U.S. Department of Housing and Urban Development can be found at http://www.hud.gov.

Research your desired lending agency

Some lenders list on their websites which documents you will need to provide to begin the home-loan process. Each lending agency runs differently; families that have faced a financial crisis will need a lender that will listen to their story. If you visit a lender that only uses a computer to determine your mortgage worthiness, search for a different agency. The FHA recognizes that a credit history report does not determine a borrower’s ability to repay a loan. “Back to Work” is offered in all 50 states, so find a lender near you that will determine if the program is right for your family’s situation.