Back To Work Extenuating Circumstances – FHA Wait Period Update

If you have had a foreclosure, short sale, Chapter 7 or 13 bankruptcy, deed-in-lieu of foreclosure, loan modification, pre-foreclosure sale, or forbearance agreement in the past few years you may be able to buy a home through FHA immediately. Depending on your time frame you can now apply for a FHA mortgage if has been 1 year from your financial hardship. That’s right – 1 year – this reduces the time frame for applying for a mortgage following financial hardship from what has been in most cases between 2-4 years down to 1.

The new FHA program is called the “Back to Work – Extenuating Circumstances” program and it is official as of August 15, 2013.

FHA is responding to the idea that sometimes credit “events” (like job loss, medical issues etc.) are beyond control and the subsequent credit history that results are not a true reflection on the your real ability or willingness to make a mortgage payment .

In short, to qualify for this program you must meet the following requirements:

  • Economic or Credit Event – pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 or 13 bankruptcy, loan modification, or forbearance agreement.
  • Full recovery from the economic event – this is simply put as be able to show that before the event you had good credit history, your credit took a hit because of the event, and that you have re-established your credit with a 12 month history on major accounts (car loans etc.) where there are no late payments (minor delinquencies may be allowed on revolving accounts).
  • Show a 20% loss of Household income for a 6 month period – you must be able to prove that you (hour household) had a 20% drop in income as a result of the economic event. You will need to thoroughly document this loss of income with tax returns and/or W-2’s, or a written Verification of Employment that shows your prior income.
  • You must complete a FHA approved housing counseling program – this program (typically 1 hour) will address what happened with your economic issue and breakdown possible action you may be able to take to prevent things from happening again.

This is a brief overview of the FHA Back to Work program – you should contact your local mortgage lender to discuss the specifics of your situation.