FHA Back To Work Versus NON-QM Mortgages
This BLOG On FHA Back To Work Versus NON-QM Mortgages Was Written By Gustan Cho NMLS 873293
FHA Back to Work Extenuating Circumstances due to an Economic Event mortgage loan program was launched on August 15, 2013 and many home buyers with a prior bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale has taken advantage of the program. However, the program turned out to be a total flop and losing proposition where it stressed out millions of borrowers who applied for this loan program. This loan program was suppose to shorten the waiting period to one year after their bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.
- When this FHA Loan Program first was launched, there was massive confusion not just for the mortgage loan applicants but also with mortgage loan underwriters.
- Countless of borrowers were told they qualified and were issue pre-approval letters to go and get purchase contracts to be told they were denied for the FHA Loan under this HUD program where it shortened the waiting period due to an economic event.
- Borrowers who were told they qualified and given the blessing of the lender to go ahead with the home buying process ended up not qualifying after they have had a signed real estate purchase contract .
- Most FHA mortgage application went into processing and underwriting came back as a mortgage denial.
- Some borrowers got conditional approvals and then after the loan approval got a loan denial because underwriters did not know what they were doing.
- As time went on, mortgage loan officers as well as mortgage lenders fully understood what types of criteria to accept prior to accepting a mortgage loan application and most lenders eliminated the FHA Back To Work Mortgage Program.
- FHA Back To Work Versus NON-QM Mortgages: Those who got turned down for this new FHA Program turned to NON-QM Loans and closed on their home loans.
Letter Of Explanation
There are strict FHA guidelines when it comes to the qualification requirements.
- Besides qualifying for credit and income and debt to income ratios, the first thing that a mortgage lender will require is a detailed letter of explanation on the circumstances that initiated the bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.
- The only extenuating circumstances allowed and permitted in order to qualify for this program is that the mortgage applicant needed to have been involuntarily our of work through layoff, company down sizing, or the company going out of business.
- If the mortgage applicant did not get terminated involuntarily and quit their jobs due to rumors that the company was going to lay employees off or that the company was going to shut their doors, they will not qualify.
- A detailed letter of explanation with supporting documents is required to see if the mortgage borrower will qualify for.
- The letter of explanation should detail the mortgage applicant’s work and credit history, what triggered the involuntary termination, what the mortgage applicant did during the layoff period and how they went about working for work, how they found their work, and what they have done to re-establish their credit after they have obtained new full time employment.
Extenuating Circumstances That Do Not Apply
To qualify for this FHA Loan Program that has shortened the waiting period after a bankruptcy and foreclosure, you needed to have been voluntarily terminated from your employment or the company that you have worked for needed to have been shut down or closed their branch operations. A termination letter is required or proof that the company shut their operations or went out of business.
The Great Recession of 2008 impacted thousands of businesses nationwide. Many hard working business owners had to mortgage their homes to the max to support their dying businesses and ended up closing their doors and a large percentage of those business owners ended up closing their doors and had their homes foreclosed on. Unfortunately, under HUD’s rules and guidelines, a loss of business does not constitute being out of work and business owners who lost their business due to the economic collapse due not qualify. HUD, the United States Department of Housing and Urban Development, considers self employed folks and business owners as sophisticated investors and their losing their business due to the economic collapse is considered a calculated risk on the business owner’s part. Business owners who lost their businesses and have been out of work due to their business failures do not qualify.
Unfortunately, those folks with other extenuating circumstances such as divorce, medical issues, and other extenuating circumstances do not qualify.
20% Household Income Reduction
To qualify for HUD’s new program, the mortgage applicant needs to have been out of work for at least six months and had a reduction of 20% or more in their household income in order for them to qualify. Mortgage lenders are extremely strict with the 20% household in reduction income rule.
Is Unemployment Income Counted In 20% Household Reduction In Household Income Rule?
If you have received unemployment income after you have been out of work, that unemployment income will not count to calculate your 20% reduction in household income qualification purposes. The unemployment income will not count towards your household income per HUD’s Guidelines under this program.
There are strict credit criteria for this loan program and mortgage guidelines. The mortgage applicant needs to have had good credit and no late payments until the day they have lost their jobs. Late payments and derogatory credit after the loss of a job is fine, however, after the mortgage applicant got a new full time job and went back to work, perfect timely payment is expected and mortgage lenders want to see re-established credit. One late payment after the mortgage applicant goes back to work will disqualify the mortgage applicant from qualifying for this loan program.
HUD Approved Counseling Certificate
A HUD approved home counseling course is required. A certificate of completion of the HUD approved housing course is required and needs to be signed and dated by the HUD approved housing counselor. Mortgage applicants cannot apply for a mortgage loan until 30 days have elapsed from the date of the housing certificate.
Comparing The FHA Back To Work Versus NON-QM Mortgages
Many borrowers who asked about FHA Back To Work Versus NON-QM Mortgages. This program turned out to be a total disaster where many home buyers went through a living nightmare dealing with lenders to be told they were denied. Many turned to NON-QM Loans where NON-QM Mortgage Lenders honored the FHA appraisals and ended up closing the home loan in a matter of couple of weeks. There is no comparison when it comes to comparing FHA Back To Work Versus NON-QM Mortgages. NON-QM Mortgages are portfolio loans where the lender holds the mortgage in house. The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 offers NON-QM Loans and there is no waiting period after bankruptcy and/or foreclosure.