FHA Back To Work Home Loans

On August 15, 2013, the United States Department of Housing and Urban Development, the parent of FHA, has launched the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program which shortens the waiting period for home buyers who had a prior bankruptcy, had a foreclosure, deed in lieu of foreclosure, or short sale to a one year waiting period.  However, to qualify for the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program, the home buyer needs to have had a loss of employment via an involuntary termination.  A person who quit their job or had their own business that closed will not qualify.  If the person heard rumors of the company laying off workers and had gotten notice that the company they were working at announced that future lay offs will happen and decided to quit or leave their jobs earlier voluntarily, they will not qualify for the FHA Back to Work Extenuating Circumstances due to an economic event. The person needs to have been laid off or unemployed for at least six months prior to filing bankruptcy or going through a foreclosure, deed in lieu of foreclosure, or short sale and had a 20% reduction of household income for at least six months.  The 20% reduction is critical and cannot be lower than that.  Many workers who have been laid off or terminated get unemployment.  Unemployment income is exempt from calculating the 20% reduction in household income.

The mortgage applicant who are applying for FHA Back To Work Home Loans needs to have since recovered and be fully employed with a full time job and have re-established credit with no late payments since the economic event.  The mortgage applicant needs to complete a HUD approved housing counseling course 30 days prior to submitting a formal mortgage loan application.

Do You Qualify For FHA Back To Work Mortgage Loan?

HUD’s new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program is not for everyone.  Do you qualify for FHA Back to Work mortgage loan?

1.  Have you had a history of good credit?
2. Have you been terminated by your employer due to the economic collapsed and have been unemployed for at least six months which has resulted in the reduction of your household income of at least 20% or more?
3. Due to unemployment, did you have to file for bankruptcy or had to go through a foreclosure?
4. Did your credit scores suffer due to your unemployment or underemployment and the result of your bankruptcy and/or foreclosure?
5. Are you now employed full time?
6.  Have you re-established your credit and did not have any late payments since your bankruptcy, foreclosure, and since you gained full-time employment?

If all of the above answers is YES, then you are the perfect candidate for HUD’s new FHA Back to Work extenuating circumstances due to an economic event mortgage loan which shortens your waiting period to a one year waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, and/or short sale.

FHA Back To Work Home Loans With Late Payments

Once the mortgage loan applicant has filed bankruptcy or had a recorded deed in lieu of foreclosure, foreclosure, or short sale, they cannot have been late with any monthly credit payments.  One late payment with a good solid letter of explanation may be acceptable but multiple late payments after a foreclosure or bankruptcy and after retaining full time employment will definitely be a deal killer. Mortgage lenders also want to see re-established credit with timely monthly payments.  Many folks re-establish their credit by getting secured credit cards.  If the FHA Back to Work mortgage loan applicant does not have any active traditional credit trade lines, non-traditional credit trade lines can serve as a substitute for traditional credit trade lines.  You cannot have any late payments on non-traditional credit trade lines.  Non-traditional credit trade lines are credit trade lines that do not report to the three credit reporting agencies such as cellular phone bills, insurance bills, utility payments, cable tv payments, and other creditors that you pay on a regular monthly basis but the creditors do not report your payment history to the credit reporting agencies.

FHA Back To Work Home Loans And Credit Report And Tax Returns

The FHA Back to Work extenuating circumstances due to an economic event mortgage loan underwriter will carefully review your credit report and look carefully at your credit history.  The mortgage underwriter will look at your credit history prior to you losing your job and make sure that you had good credit and on time payment history for at least 12 to 24 months prior to you losing your job.  The mortgage underwriter will expect that your credit scores have dropped significantly after you have lost your job and the chances are that you may or may not have made your minimum monthly payments.  Underwriters will normally expect that you have not.  Your tax returns and W-2s will be cross matched with your credit report and the mortgage underwriter will want to see tax returns and W-2s that were two years prior to you losing your job.  The mortgage underwriter will review tax returns, and W-2s if any, during you job loss period and expect to see at least a 20% reduction of household income.  Unemployment income is exempt in calculating income so you need not worry about unemployment income.  Mortgage underwriter will also review your income history and credit payment history after y9u have gained full time employment.  You cannot have any late payments on your credit record after you have gained employment and mortgage underwriters do expect to see re-established credit.  If you have no traditional credit trade lines, Non-Traditional credit tradelines can serve in lieu of traditional credit trade lines.

Manual Underwriting On All FHA Back to Work Home Loans

All FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program are all manual underwrites and the maximum debt to income ratio cap is set at 43% DTI on the back end and mortgage lenders do not want the front end debt to income ratio to exceed 31%.  Since all FHA Back to Work mortgage loans need to be done via manual underwriting, the front end debt to income ratios and back end debt to income ratios can go higher than the 31% DTI and the 43% DTI as long as there are compensating factors.  Compensating factors are positive factors of the mortgage loan applicant such as having reserves, larger down payment, verification of rent with little payment shock, and other positive factors such as overtime income but not using overtime income to qualify income.

Verification Of Rent Required On All FHA Back To Work Home Loans

All manual underwriting mortgage loan applications require verification of rent. Since all FHA Back to Work Extenuating Circumstances mortgage loans are manual underwrites, verification of rent will be required.  Verification of Rent can only be used if and only if the renter can provide 12 months of canceled checks paid to the landlord and they cannot be any late payments.  Unfortunately, cash rental payments to the landlord cannot be used as verification of rent even though the renter has a cash paid receipt from the landlord.  An exemption to this rule is if the renter is renting their rental units from a property management company.  If the renter is renting from a property management company, the property manager needs to write a letter on property management company letterhead stating that the renter has made timely payments in the past 12 months.

FHA Back To Work Home Loans Approvals

FHA Back to Work extenuating circumstances due to an economic event are real tough loans to qualify, process, underwrite, approve, and close.  There are many moving parts with  processing FHA Back to Work mortgage loans.  Whenever a FHA Back to Work Home Loans are submitted, a pre-processing system comes into play where the mortgage loan application is thoroughly reviewed not just by the mortgage loan originator but a Quality Control Specialist will also go over the file with a fine tooth comb.  Approvals on FHA Back to Work Mortgage Loans take more time than a traditional FHA mortgage loan approval.

Credit Profile Of FHA Back To Work Mortgage Borrower

FHA Back to Work Mortgage underwriters will carefully review the credit profile of the Back to Work mortgage loan applicant.

• The mortgage applicant’s prior credit history prior to the economic event will be reviewed
• The borrower will need to have been timely with all of his or her monthly payments prior to the economic event
• The credit could have suffered during the time of the economic event
• But the credit has to have been perfect after the borrower has obtained new employment or after the bankruptcy and/or foreclosure
• Underwriters will want to see no late payments after the bankruptcy and/or foreclosure and re-established credit
• Late payments and derogatory credit after the economic event will be a disqualifier

Verification Of Rent Required On FHA Back To Work Mortgage Loans

Most FHA Back to Work lenders wants to see rental verification.

• Rental verification can only be used by providing 12 months of canceled checks to the landlord
• Cash rental payments are not allowed and it cannot be used for rental verification
• If you are renting from a property management company, a letter from the property management company is sufficient
• If you are living with family and have no rental verification, this can be a cause for mortgage denial
• But depending on the circumstances, it may be allowed depending on the mortgage lender