FHA Reduces Homebuyer Waiting Period for Victims of Recession

FHA Back to Work Announcement:

August 2013: Boomerang buyers are able to buy again a little sooner after FHA’s recent announcement of the Back to Work – Extenuating Circumstances exception.

People that lost their homes due to a loss in employment or income, now have the ability to buy as soon as 12 months after a bankruptcy, foreclosure, short sale or a deed in lieu.

Extenuating Circumstances

This is long awaited program that adds specification to the extenuating circumstances exception guidelines to specifically address shortening the waiting period to buy a home after the hardship.

Extenuating Circumstance exceptions are typically very vague and rarely granted.  Unlike other extenuating circumstance definitions, the Back to Work program gives us a very clear definition for qualifying.

Back to Work – Definitions

FHA introduces several new terms that are vital to determining eligibility for this exception.

• An Economic Event is an occurrence beyond your control that results in a Loss of Employment, Loss of Income or a combination of both, which causes a reduction in the your Household Income of 20% or more for a period of at least 6 months.
• The Onset of an Economic Event is the month of the Loss of Employment/Income.
• Recovery from an Economic Event is is the re-establishment of Satisfactory Credit for a minimum of 12 months.  Satisfactory Credit means no major derogatory credit history on all mortgages (if home retained after BK) and/or all revolving and installment accounts listed on your credit report.
• The term Borrower includes borrowers and co-borrower.
• Borrower Household Income means the gross income of the borrower and all Household Members, as defined below, for the purposes of assessing a loss of income.  The gross income of each Household Member must be calculated
• Household Member means an someone living in the home at the time of the Economic Event and who was a co-borrower on a the defaulted mortgage.
• Borrower Household Income is used for the purpose of defining an Economic Event.
• Housing Counseling is required for all to meet all of the qualifying requirements for this exception.

Quick Qualifying Guide

This program was announced by FHA by way of the 15 page Mortgagee Letter 2013-26 on August 15th, 2013.

Here’s a quick breakdown of everything you need to know to quickly identify if you should follow up with a qualified lender for actual qualification.

Qualifying for Back to Work is to ask for an exception due to extenuating circumstances.  Extenuating Circumstances are a 20% drop of income due loss or reduction of income for 6 months.

Eligible Economic Events

Loss of Income must be documented in one of two ways:

• a written Verification of Employment documenting date and amount that income dropped, and when it was restored or,
• signed tax returns or W-2s showing minimum 20% loss in Household Income

Loss of Employment must be documented by providing the lender:

• a written Verification of Employment (VOE) showing termination date, or
• in cases where the your prior employer went out of business,
  • a written termination notice, or
  • other publicly available documentation of the business closure, and
  • documentation of receipt of unemployment income

When Can I Buy Again?

You can buy again in with 12 months of on-time payments and proof that you have recovered from your Economic Event.

Under the Back to Work Extenuating Circumstance exception, you can buy after bankruptcy, foreclosure, short sale or deed in lieu of foreclosure that was the result of a minimum 20% drop in income or loss of employment over a minimum of 6 month period.

What to Expect

This is a new program.  Those early to qualify to buy again using the Back to Work program will find it helpful to be patient during the qualifying process. Ask your lender if they are familiar with this exception and even for lender that are familiar, there is a lot of documentation that required in order to qualify for this exception.

NOTE about CAIVRS: If your previous foreclosure, short sale or deed in lieu was a Government loan (FHA & VA), it is possible to ask for a CAIVRS exception if you meet Back to Work qualifying guidelines.

Let your lender know if you are certain that you defaulted on a FHA, VA or USDA guaranteed home loan.  The early jump on this will save you precious days during escrow process.