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.