FHA Back to Work Program

Recently HUD announced a change to the FHA loan program with the idea in mind to assist potential home buyers who experienced unemployment or other severe reduction in income due to the recent recession and help these people to be eligible for a new home loan. Previous FHA guidelines called for a minimum of 3 years after a foreclosure or shortsale. Under the new rules a borrower may be eligible for a new FHA mortgage loan after just one year.

This is great news for people who had a shortsale or foreclosure that was specifically due to a loss of income and not just a loss of value in the property. The borrower must be able to demonstrate that the credit impairment was directly tied to an economic event that was beyond their control and then have re-established good credit for at least a year since the event. Also, as part of the mortgage approval process the borrower must attend a HUD approved housing counseling course.

The rules that have been set down are very specific so there are going to be a lot of people who have situations that fall outside of these new rules and those will have to continue to wait for a 3 year time period on FHA and up to 7 years for a conventional loan (minimum of 4 years from a shortsale and 7 years from a foreclosure). Here are the specific guidelines:

1. Must be able to document an Economic Event that was beyond their control that resulted in at least a 20% drop in income - loss of employment, etc.

2. The date of the Economic Event must coincide with the beginning of any credit impairment that occurred. Meaning, the credit issues, which could include a shortsale, foreclosure, bankruptcy, collection accounts or late debt payments, occurred beginning with the loss of income. It is very important that the borrower had a nice clean credit report prior to the loss of income.

3. The borrower must have re-established good payment histories for at least a 12 month time frame since recovering from the loss of income. Bottom line - no late payments in the past 12 months.

These rules are pretty specific but will help some potential home buyers to move back into home
ownership. If you know of someone who could benefit please pass this along to them!

Ken Mascia, Licensed Loan Officer NMLS 135323