If you’ve had a bankruptcy, short sale or foreclosure, there is a waiting period that must take place before you can start the mortgage process. Wait periods vary depending on the type of derogatory event and the mortgage program. This reader’s excellent question is from an article I recently wrote about FHA’s “Back to Work” program.
We will reach our 1 year mark on January 30. Can we do anything before then to get the process started or do we have to wait until January 31?
FHA’s “Back to Work” program reduces the wait period to 12 months assuming the “economic event” (short sale, foreclosure or bankruptcy) was a result of loss of employment or income beyond the borrowers control. “Back to Work” is technically not a mortgage “program”, it’s a new “extenuating circumstance” which HUD allows for expanded guidelines with an FHA mortgage. Please check out my previous articles about FHA’s “Back to Work”.
The reader’s question actually applies to all borrowers who are counting down the days on a “waiting period”.
When there is a “waiting period” you cannot submit an offer on a home until the wait period is over. Underwriters will look at the date of the purchase and sales contract and the date must be after the wait period (to the date). The same is true with the date of the “official” loan application. A borrower can start a loan application to have their credit ran for a purchase, but once a property is identified from an offer being made, that is considered the “date” of the loan application. (With a refi, the date of the application will be triggered when the credit report is ran).
Our reader can make an offer on a home and have an official loan application as of January 30, 2014.
So what can she do during the next couple months to prepare? Plenty! 🙂
I recommend starting with meeting with a local mortgage professional and having your credit report pulled and reviewed. You now have the luxury of time to make any changes or tweaks to your credit that may improve your credit score. Please DO contact a mortgage professional to help you with this as most “common sense” actions (like paying off and closing accounts or disputing items on your credit report) may actually be the wrong moves and could lower your credit scores.
FHA’s “Back to Work” requires that you have 12 months of on-time payments so pulling your report now will help establish or confirm how soon you can buy again.
Start collecting “vesting” documents. If you’ve had a short sale, you will need a copy of the final HUD-1 Settlement Statement. If you do not have a copy of your HUD-1 Settlement Statement, you should be able to obtain this from the escrow company or attorneys office who handled the closing.
If you’ve had a foreclosure, you will need a copy of the deed that vests out of your name. You may need to contact the county recorders office where your property was located in to obtain this document. (If your property was located in Washington state, I can probably help you with this).
The dates on the final HUD-1 Settlement Statement and/or the recording date of vesting deed transferring title out of your name are the dates that start the count down for the official waiting period.
Get prequalified. Once again, this will require that you meet with a mortgage professional. They can review your current employment, income and assets to see how much you would qualify for now based on current rates. Of course, rates will change by the time the waiting period is over. However, this will give you a rough idea of what to expect and how much you may need for down payment and closing cost. There is really no reason that I can think of to not get prequalified.
Collect documentation to illustrate the “economic event”. This applies mostly to FHA’s new “Back to Work” guideline which requires an “economic event” to have taken place. Borrowers will need to be able to document that they had a decrease of 20% or more of their household income for a minimum of 6 months. Documentation may include termination notice, paystubs illustrating reduced income, public notice of employer’s business closure, unemployment income, tax returns, etc.
Collect bankruptcy documents, if any. If there was a bankruptcy, the lender will also need a complete copy of the bankruptcy as well as a copy of the bankruptcy discharge.
Get Housing Counseling. FHA’s Back to Work requires that borrowers receiving housing counseling by a HUD approved counselor. The counseling must take place at least 30 days prior (but not more than 6 months prior) to the loan application or purchase and sales agreement date. So if our reader is planning on making an offer on January 31, 2013 on a new home, she needs to receive housing counseling no later than December 30, 2013 and not sooner than July 30, 2013. If she were obtain counseling today, the counseling would be valid for six months (late March 2014).
If you have had a short sale or foreclosure and are looking to buy a home again located anywhere in Washington state, I’m happy to help you prepare for your next mortgage.