Editor’s Note: The FHA Back-to-Work Program expired Oct. 1, 2016. If you’ve experienced a foreclosure, short sale, or deed-in-lieu of foreclosure with extenuating circumstances, then you may be eligible for shorter waiting periods.

Who is eligible for the FHA Back to Work program?

Up until recently, those who wanted an FHA loan after a Chapter 7 or Chapter 13 bankruptcy, foreclosure, short sale, or deed-in-lieu of foreclosure had to wait years before being eligible for another loan.

But FHA recently announced an amendment to their typical rules, called the Back to Work program. If the applicants can document that they lost their job or had a serious reduction in income through no fault of their own, then they may be able to qualify for an FHA mortgage after all with just a 12-month waiting period.

What is the FHA Back to Work program?

FHA recognized that the economic downturn, the worst economic period since the Great Depression, drove many people out of work. Borrowers that once had good credit and qualified for a mortgage suddenly found they could no longer keep up with their mortgage payments.

If a mortgage lender can document your “economic event,” it’s possible that a new FHA mortgage may be approved by following the FHA Back to Work guidelines.

If you answered “Yes” to all of these questions, you might be eligible for the FHA Back to Work program. Contact an FHA lender to find out for sure.

FHA Back to Work guidelines

When a lender reviews an FHA loan application using these new standards, they must document that:

1. The derogatory credit was due to a loss of employment or reduction in income
2. The borrower has fully recovered from the event (i.e., is literally “back to work”)
3. The borrower has completed the required housing counseling

1. Loss of employment or income

The borrower must provide evidence to the cause of job loss as well as document that household income fell by more than 20 percent for at least six months as a result of a layoff or loss of income.

The lender will accept a letter from the previous employer explaining the layoff. Or, the borrower can provide a copy of the termination letter or provide evidence of receiving unemployment compensation.

The borrower can also provide tax returns, W2s, and paystubs showing their income prior to and during the period of reduced income.

2. Full recovery from the economic event

Satisfactory credit history over the previous 12 months must be provided.

However, this is sometimes difficult because someone with a newly discharged bankruptcy may not have too many credit options available to them.

But FHA will not hold it against anyone who has no new credit accounts since the event. But, if any new accounts have been opened or have been open since the event, no more than one 30-day late payment is allowed.

The most important validation of satisfactory credit will be timely rental payments. If there are no rental payments more than 30 days past the due date, it’s a good indication you have recovered.  Any outstanding collections or judgments from creditors also need to be resolved in order to qualify for this program.

3. Counseling

Eligible borrowers must also attend and complete an authorized Housing Counseling Course. This special program helps those to recover and repair their credit history as well as help establish a budget and manage their credit affairs in the future.

HUD approved housing counselors for the FHA Back to Work program can be found by your state of residence at HUD’s website.

Will the FHA Back to Work program help?

Time will tell if FHA’s Back to Work program will help a significant number of people. What is clear is that FHA is willing to bend their rules a bit to help true victims of the Great Recession of 2008 and following.