As a result of the recent recession, many families faced a period of financial difficulty due to job loss or reduction in income. In August of 2013 Federal Housing Authority moved to relax its guidelines for borrowers who had experienced a significant “financial event,“ such as bankruptcy, foreclosure, short sale, or a loan modification, with their Back to Work Program. The FHA believes that some borrower’s credit history, although negatively affected by loss of income, may not truly reflect their credit worthiness. As a result, the FHA is now waiving their traditional waiting periods following a derogatory credit event. The former guidelines required that a borrower wait 3 years after a deed-in-lieu, foreclosure, or short sale, and 2 years after a bankruptcy, to qualify for an FHA mortgage. The new guidelines provide that if a borrower qualifies based on all other FHA requirements, the adjusted waiting periods will be only 12 months for those economic events. This program requires the following:
- The borrower has recovered from the financial difficulty, and has 12 months of good credit history, free from derogatory credit issues.
- The borrower can document financial hardship, and that their credit issues were a result of a loss or reduction of income. Their household income had to have been reduced by at least 20% for a sustained period of at least 6 months and through the date of the “financial event”
- The borrower must complete HUD approved housing counseling 30 days prior to writing a contract to purchase or officially starting the mortgage process.
Meeting the above requirements does not automatically qualify an applicant. They must still meet the Standard FHA underwriting guidelines; however, this program will allow many families to once again become homeowners sooner. For more information, please visit http://portalapps.hud.gov/FHAFAQ/controllerServlet?method=showPopup&faqId=1-ATX2MV and http://portal.hud.gov/hudportal/documents/huddoc?id=13-26ml.pdf for the full mortgagee letter and guidelines.
Posted by: Latara Clements, Florida Dream Real Estate, New Home Specialist for Central Florida