FHA recognizes hardships faced by these borrowers, and realized that their credit histories may not fully reflect their true ability to repay a mortgage.
The Back to Work FHA Loan Program is an option for some borrowers that have experienced an economic hardship.
FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document:
- Certain credit impairments were the direct result of a loss of employment or significant loss of household income beyond borrower’s control.
- The borrower has demonstrated full recovery from the event
- The borrower has completed Housing Counseling completed within at least 30 days prior to application but no more than 6 months prior to application date.
Economic Event is any occurrence beyond borrower’s control that results in loss of employment/ income which causes a reduction in the borrower’s household income of 20% or more for a period of at least 6 months.
Recovery from Economic Event is the re-establishment of satisfactory credit (defined in detail as listed in FHA MEMO 2-13-26, page 5) for a minimum of 12 months.
Satisfactory credit requirements include, but not limited to, no mortgage late payments, installment, revolving account or major derogatory credit issues within the last 12 months. If a mortgage term was modified, as long as borrower has made timely payments according to modification agreement this may be acceptable.
- Borrower exhibited satisfactory credit prior to the Economic Onset
- Borrower’s derogatory credit occurred after the Economic Event
- Borrower re-established credit for last 12 months
v Collection/Judgments need to be verified as result of Economic Event
v Foreclosure/Short Sale/Bankruptcy: A minimum of 12 months must have passed since the date of Foreclosure/Short Sale/Bankruptcy and this must be documented it was the result of Economic Event.
(Chapter 13 Bankruptcy requires a letter from the courts to proceed with a mortgage loan)
Satisfactory Housing Counseling – Borrower must receive homeownership counseling by a HUD approved housing counseling agency. Housing Counseling may be in person, via phone, via internet or other approved methods by HUD. List of agencies can be found at http://www.hud.gov.
*Please note: Each lender/bank may have specific overlays. This is intended for educational information only. Additional documentation and guidelines apply.
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