Just a week ago, the Federal Housing Administration (FHA) announced that it would waive 3-year foreclosure and 2-year bankruptcy waiting periods for homebuyers whose credit histories were damaged by the recession. Although this is great news for many families, the Back to Work – Extenuating Circumstances program does require that applicants follow specific instructions. Not everyone is eligible, so it’s important that you check the details of the change before moving forward with the process. Today we’re going to look at the effects of the FHA Back to Work program, so that homebuyers know what to expect with this new change in policy.
Effects of the FHA Back to Work Program
First, it’s important to note that just because the waiting period is more lenient now, that doesn’t mean that homebuyers will automatically qualify for an FHA-backed loan. Applicants need to do their homework and prove that the so-called “economic event” they experienced reduced their income by at least 20% for 6 months or more. They will also need proof that they have recovered from the event and have undergone housing counseling with a HUD Counseling Agency (a minimum of one 1-hour session is required).
So as you can see, the FHA Back to Work program doesn’t help just anyone who suffered because of the recession; it only supports individuals who are deemed responsible and creditworthy. Only those applicants who are employed, have a steady income, and can prove their trustworthiness and strong pay history will qualify. As President Obama said when he announced the FHA Back to Work program, “We should give well-qualified American who lost their jobs during the crisis a fair chance to get a loan if they’ve worked hard to repair their credit.”
The FHA Back to Work program can really help borrowers, but it will require mortgage lenders to do a lot of documentation and make many judgment calls. Some lenders may be a little cautious, refusing applicants who they feel aren’t quite ready for the responsibility of a mortgage. Also, be aware that the waiting period has not simply vanished. Prospective borrowers can still expect to wait about 12 months before they’re able to reenter the housing market.
FHA loans are a great option for homebuyers struggling with credit issues or few savings, and with this change, many borrowers will be able to reenter the housing market sooner than they had anticipated. Before the FHA Back to Work program, there were very few options for people who had suffered a short sale or foreclosure (VA loans are an example, but they’re obviously only an option for veterans).
The FHA Back to Work program went into effect on August 15, 2013, and it will be effective through September 30, 2016. Not all mortgage lenders will be participating and, as we’ve already detailed, not all applicants will qualify.
So if you suffered from a recession-related financial downturn but you’ve turned your situation around, the FHA Back to Work program may be the second chance you need. Just be sure to read the fine print and gather documentation and evidence of your past bad luck and current prosperity.