FHA Back To Work Extenuating Circumstances Due To An Economic Event

The United States Department of Housing and Urban Development, also known as HUD, has launched the all new one year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.  The one year waiting period after foreclosure and/or foreclosure is called FHA Back to Work extenuating circumstances due to an economic event mortgage loan program which was launched last August 15, 2013.  The FHA Back to Work mortgage program is offered only to qualified individuals who have had a job loss for at least six months and due to this job loss has had a 20% reduction of their household income for at least six months.  Due to this job loss or underemployment, the FHA Back to Work mortgage loan applicant was forced into bankruptcy and/or foreclosure.  The job loss had to have been an involuntary job loss and those who resigned or quit does not qualify.

Loss Of Employment As Extenuating Circumstances

FHA Back to Work mortgage lenders will want to see proof that the candidate was terminated and did not quit by them providing proof of termination paperwork and/or a verification of employment where the employer states that the employee was terminated and did not voluntarily leave.  Divorce and/or medical illness does not qualify for the FHA Back to Work Extenuating Circumstances due to an economic event.  With traditional mortgage loans, only two years tax returns and/or W-2s are normally required.  However, FHA Back to Work extenuating circumstances due to an economic event mortgage loan applicants need to provide two years prior tax returns and two year prior W-2s of the economic event for a total of 4 to 5 years of tax returns and W-2s.  What mortgage loan underwriters are looking for is a graph of how the mortgage loan borrower’s income was prior to the economic event, during the economic event, and after the economic event to make sure that a 20% reduction of income was sustained.  Unemployment income is not counted as income and is exempt from the 20% household income reduction calculations.

Credit Criteria

FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan underwriters will carefully analyze the mortgage loan borrower’s credit history.  FHA Back to Work mortgage loan underwriters will want to see a span of the FHA Back to Work mortgage applicant’s 5 to 10 year credit history.  The mortgage applicant should have had good credit prior to the loss of their job, their credit then suffered during the loss of their job period and bankruptcy/foreclosure period, and then the mortgage loan underwriter want to see that the mortgage applicant has re-established their credit and not had a single late payment history after the economic event.

Manual Underwriting

All FHA Back to Work extenuating circumstances due to an economic event mortgage programs are all manual underwrites and compensating factors are taken into consideration.  What are compensating factors?  Compensating factors are low debt to income ratios, reserves, larger down payments, and other favorable factors that make the borrower a strong borrower.  Manually underwritten mortgage loan applications are normally capped at a 43% debt to income ratio.  However, it can go over the 43% debt to income ratio threshold as long as there are compensating factors.  All manually underwritten mortgage loans require verification of rent.  Verification of rent can only be proved by providing 12 months of cancelled checks paid to the landlord as well as a one page questionnaire signed by the landlord stating that the tenant has paid their rent payments timely for the past 12 months.  Those who are renting their apartment or home from licensed registered property management company do not need to provide cancelled checks.  A letter from the property management company manager will be sufficient.

HUD APPROVED HOUSING COUNSELING CERTIFICATE

A HUD approved housing certificate is required signed by the housing counselor.  Candidates for the FHA Back to Work Extenuating Circumstances due to an economic event need to take a one hour housing class and can only apply for the FHA Back to Work mortgage loan 30 days after the completion of the housing course.

TBD PROPERTY UNDERWRITING:  NO PURCHASE CONTRACT REQUIRED

I can now offer mortgage loan borrowers from Illinois, Florida, Wisconsin, California, and Indiana FHA Back to Work extenuating circumstances due to an economic event mortgage loans as a TBD PROPERTY UNDERWRITE.  What TBD Property Underwrites are is where the mortgage loan borrower submits their mortgage application with no real estate purchase contract.  The mortgage lender will process and underwrite the mortgage application like it would any other mortgage application and will issue and approval contingent upon the real estate purchase contract and the appraisal.  Since FHA Back to Work Extenuating Circumstances mortgage loans have a high rate of denials, going the TBD subject property underwriting is a great way of knowing that you are 100% approved for the FHA Back to Work mortgage program before you go out and enter into a real estate purchase contract.

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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