FHA unveils “Back to Work” Guidelines for those who had a Short Sale, Foreclosure, Deed-In-Lieu, or Bankruptcy
HUD released Mortgagee Letter 2013-26, also referred to as “Back to Work” that features enhanced guidelines for home owners who lost their homes via short sale or foreclosure due to financial difficulties. “Back to Work” shortens the required wait periods for borrowers wanting to buy a home again.
Quick Qualifying Guide
This program was announced by FHA by way of 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 requires asking for an exception due to extenuating circumstances. Extenuating Circumstances are defined as a 20% drop of income due to 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 the date and amount that income dropped, and when it was restored, or:
- Signed tax returns or W-2s showing a 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
Before you get too excited, please keep in mind that although HUD and FHA recognize these hardships and are willing to allow borrowers who have faced these hardships to buy again before the current waiting periods, we are waiting to see if lenders will embrace these guidelines. Just because HUD and FHA (or Fannie or Freddie) have certain underwriting standards, it doesn’t mean that all banks or lenders have to offer them. It’s not a law – it’s a guideline.
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 lenders that are familiar, there is a lot of documentation that will be required in order to qualify for this exception.
That being said, get on board now if you want to beat the rush!
To see all FHA Mortgagee Letters visit: http://bit.ly/HUDml.