Due to financial hardships caused by the recession, many homeowners were forced to forfeit their houses in a foreclosure or sell them as a short sale. Typically, an ex homeowner who lost their home in one of these situations would have to stand aside and wait a minimum of 36 months before attempting to purchase another home with a loan from the Federal Housing Administration (FHA), or a minimum of seven years with a traditional mortgage.
Recently, the Federal Housing Administration has announced great news for ex homeowners who are hoping to purchase a house again using an FHA loan. If you lost your home due to extenuating circumstances that resulted in one of the following situations, the mandatory waiting period could be over. These situations include loss of home due to:
- Short sale;
Now, through a new program, ex homeowners can bypass the normal mandatory three year waiting period and purchase a new primary residence in as little as twelve months, if they can prove that they are financially back on track.
This new program is part of the Federal Housing Administration’s “Back to Work- Extenuating Circumstances Program”. It allows borrowers that lost their primary residence due to financial hardship caused by extenuating circumstances the opportunity to once again become eligible to apply for a FHA mortgage as soon as twelve months after the loss of their home.
The program’s rules are fairly strict and contain specific guidelines on who will qualify. Borrowers who wish to benefit from the program must jump through several hoops in order to prove to the FHA that they are financially responsible once again.
How to qualify for a Back to Work FHA loan
- First, borrowers must provide proof that the loss of their home was caused by what the FHA defines as an economic event. An economic event is the sudden loss of income, employment, or the combination of both, that occurred through no fault of the borrower. The economic event has to have caused the potential borrower a reduction in income of 20 percent or more, for a period of six months or more.
- The second criteria of the program is that the borrower has to have experienced a full recovery from the economic event that caused their foreclosure, short sale, or bankruptcy. For example, if the borrower lost their home to a foreclosure caused by a job loss, they must prove that they are once again gainfully employed and are fully capable of making loan payments again. In addition, the borrower must also show proof that, prior to the economic event, his or her credit was satisfactory, with no late payments or other negative credit issues. The borrower must then show proof that they have re-established a satisfactory credit history following the loss of the home.
- Finally, the borrower must participate in a one-hour one-on-one housing counseling class from the Department of Housing and Urban Development with at least thirty days prior to filling out an FHA loan application.
For more information on how to qualify for a Back to Work FHA loan, or to find out what other options you have, contact Maureen Martin.