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.
Sometimes, things just happen in life to make losing your home unavoidable. The Federal Housing Administration (FHA) began a program in August 2013 to help some of those unfortunate souls to purchase a home again just 12 months after experiencing a bankruptcy, foreclosure, short sale, or deed-in-lieu of foreclosure. It’s called the FHA Back to Work Program, and for some it is working.
“I am getting a lot of referrals for the program,” said Brad Neumann, branch manager for CrossCountry Mortgage Inc. in Downers Grove, Ill.
To be eligible, potential buyers must document a 20 percent loss in income for at least six consecutive months prior to losing the house. They also need to verify that they are reestablishing their credit and their income to be able to afford another house.
The program does not take into consideration divorce, previous loan modifications or adjustable-rate loan recasting as reasons to qualify. It also requires the borrower to go through HUD-approved ownership counseling and then wait 30 days before they can apply for a loan.
“It can be very frustrating sometimes. I had someone that had 18.9 percent loss of income, and there was nothing we could do for him,” Neumann said.
Twelve months after a foreclosure or short sale to get a loan for a house is much faster compared to the seven-year wait for a conventional loan or three years for a regular FHA, VA or USDA loan.
FHA Back to Work Success Stories
Two of Neumann’s success stories include:
A couple whose son was diagnosed with Autism – “The father had taken off work for a while to help with the son. They had to move to a different town and to a different school to get the care they needed for their son,” Neumann said.
Their home was already underwater. The did a short sale. They had done everything they could to keep it, but the market crashed.
“A year later, the husband had gotten back to work along with the wife, and their two incomes helped them save a lot of money. Their credit was getting back to normal, too,” he said. “They were better off than many of the people that are approved for a regular FHA loan.”
They were approved for a Back to Work Program loan for over $200,000.
Renters trash his house while he’s out of country – Neumann also helped a man get an FHA Back to Work loan after the people renting his primary residence trashed it. He had been relocated to Canada for a year. When he got back, he discovered he would have to put in $30,000 of repairs to even get it fixable to live in again.
“He was already underwater on the purchase, so putting that much money back in to it didn’t make sense,” Neumann said.
He tried to short sale it, but that didn’t happen, and it went into foreclosure.
“The guy was making really good money, and then he got relocated back to Texas. I’m licensed in Texas, too, so I was able to help him out to get a FHA Back to Work loan,” he said.
He’s still at the same company with a more permanent job.
“As far as getting underwriting approval on these loans, if these clients have saved money, they are the ones I get approved and not the ones who are trying to borrow money for a down payment,” he said.
Scott Hastings, mortgage consultant for Movement Mortgage in Cornelius, N.C., said that the Back to Work program is not common in his area, yet.
“Most people don’t qualify. They can’t document the loss of their home purely from the loss of a job. There are a lot of stipulations. But like any program, if you fit those guidelines, it’s not hard,” he said.
But he has helped one family get in a home again.
Transferring family gets back on track after losing house – They thought it was a dream job and location. The husband had been transferred to California from North Carolina. But by the time he got there, the job fell apart. He got laid off.
“It took a while for him to get another job. In that time frame, they got behind on mortgage payments for their home in North Carolina, and a short sale was done,” Hastings said. “Now, their income is back on par, and their credit is fine. They are back in North Carolina and are able to buy a $200,000 house. They had 10 percent down saved.”
Limited Time Remaining for Program
The new FHA rule is not a permanent change to the program. It was designed as a temporary adjustment due to the housing and economic downturn that started in 2008.
Those interested in buying again after a significant economic event such as bankruptcy or foreclosure can apply for FHA’s Back to Work Program until September 30, 2016.