UPDATE Sept 9, 2013: I just received a memo from our management and we are doing FHA’s “Back to Work” program for home buyers who meet the criteria.
HUD released Mortgagee Letter 2013-26, also referred to as “Back to Work” featuring 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. From ML 2013-26:
As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale [short sale], deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit have been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability to repay a mortgage.
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, does not mean that all banks or lenders have to offer them. It’s not a law – it’s a guideline.
Currently, if a borrower wants to buy again after a foreclosure or short sale, FHA has a 3 year wait period from the date of the sale. However, if a borrower has a short sale and was not delinquent on their mortgage or installment debts for 12 months preceding the short sale, there is no wait period to buy again using FHA. “Back to Work” will allow borrowers to buy again in 12 months following a foreclosure, short sale or bankruptcy (Chapter 7 or 13). Housing counseling is a requirement.
In order to qualify for “Back to Work” (assuming lenders embrace ML 2013-26 guidelines), the borrower must meet specific criteria. The borrower must be able to document (prove):
- their delinquencies were a result of an “Economic Event” (loss of income or employment) that was out of the borrowers control.
- show the loss of income was at least 20% reduction in household income for a minimum of six months. NOTE: Household income is considered all income earning members of the household at that time – even if those parties are not part of the proposed loan application.
- derogatory credit must have taken place after (not before) the “Economic Event”
- credit history needs to reflect no late payments in the last 12 months (one 30 day late on non-mortgage accounts is allowed).
- no collections with exception to medical or identity theft.
Borrowers need to be able to illustrate they had good credit prior to the job/income loss (Economic Event) and that the derogatory credit events (foreclosure, short sale, bankruptcy, late payments, etc.) took place because of the loss of income (ie the bad credit is only during that time period). And last, but not least, they need to demonstrate that over the last 12 months, they have re-established their credit and employment.
Again, we’re waiting to see which lenders will accept HUD’s new guidelines allowing home owners who suffered loss of employment to buy a home again in 12 months instead of 36 months. If you are someone who lost your home to foreclosure due to a “strategic default”, these guidelines will not apply to your circumstance.
Stay tuned!
We will be trying to sell our current home due to a job relocation. Would this guideline help us purchase in 12 months if our home sells in short sale (hopefully) or worst case we have to deed in lieu? We have excellent credit.
thanks
Hi Laraby,
I wouldn’t count on being able to use this guideline to be able to buy your next home. For starters, most lenders have not yet adapted this guideline.
Is your employment change/relocation causing you a significant loss of income (20%) for six months or more in your household?
You can read the entire mortgagee letter here: http://portal.hud.gov/huddoc/13-26ml.pdf
My husband cannot find a job in the area our house is located in. He has a new job paying more 250 miles away. House is underwater. We have no other options other than short sale or deed in lieu. As I said we have excellent credit. How long will we be penalized before we can purchase another home? thank you in advance.
Hi Laraby,
I don’t have an exact answer for you. FHA’s “Back to Work” is a new guideline allowing lenders (who want to) to use the recent recession as an extenuating circumstance.
If your scenario does not qualify for “back to work” or you cannot find a lender who is accepting this guideline, then the amount of time you will need to wait will depend on a couple of things.
FHA will allow you to buy again (if you’re not able to do “back to work”) after 3 years has passed from the sale of your home. This is down to the date of the sale of your home for a short sale or foreclosure/deed in lieu.
Conventional will require up to 7 years for a foreclosure/deed in lieu or 2 years with 20% down payment (not all lenders embrace this guideline and may require more time).
I’ve written an “e-book” about buying again, after a short sale, foreclosure or deed in lieu – you can read it here.
PS: Lenders treat “deed in lieu” of foreclosure and a foreclosure the same.
If you are considering a short sale, deed in lieu or a foreclosure, you may want to contact a local housing counselor. If you’re in Washington state, you may be able to find help here.
this is unbelievably sad – that someone with great income and credit is penalized because they must move for a job and cannot sell their current home in a market that has not and will not rebound anytime soon (Atlanta). Are we expected to pay two mortgages for seven years? .
Hi Laraby,
I’m sorry for your situation. I do recommend you contact a housing counselor in your area. Maybe they will have other options for you. Perhaps you can rent out your current home? If you do lose your home, FHA has a 3 year wait if you don’t qualify for “Back to Work” (assuming your current mortgage is not FHA) so you may not have to wait 7 years. Good luck
I’m pleased to announce that we have the “Back to Work” program https://mortgageporter.com/2013/09/fha-back-to-work-is-available-at-mortgage-master-service-corporation.html
We received Ch.7 discharge in Oct. of 2012. Our mortgage was included and discharged in the BK. Lender held foreclosure auction in May of 2013 but has not recorded a foreclosure deed transferring title. Assuming I meet all of the other requirements of the “Back to Work” program, then do I need to wait until 12 months after the recording of the foreclosure deed or am I OK because I am more than 12 months beyond my BK discharge.
Hi Mike,
I believe you are going to need the recorded deed transferring your name out of title. The guidelines on the ML call for a minimum of 12 months to pass since the foreclosure or deed in lieu. Was the property purchased at auction in 2013? Do double check with a local lender as this is a newer guideline.
I am in the exact situation. My mortgage was discharged in 2011 but my house has yet to be foreclosed. How did you make out?
Thanks,
Mike B
This is great for these people but once again does nothing to help those that do not have a loan backed by Fannie Mae or Freddie Mac, are underwater, and have faced loss in income due to unforeseen circumstances. Some of these people are doing everything in their power to pay their mortgage yet those who walk away from their homes are getting the help or those who don’t really “need” the help (those who are not underwater, have plenty of income, and equity in their homes) can refinance with no problem. Sure seems like an unfair, unreasonable, and ludicrous concept.
This is so frustrating! My husband was transferred and I, in turn, did my best to find a job in his new state (which I did). We tried to rent out our house in WA, but were paying nearly $1,000 per month just to keep the house ($1,000 rental income did not cover our $2,000 mortgage! we were under water over $125k!). And on top of that we were paying all of the taxes, insurance, etc…in addition to paying rent in CA! Why can we not get the same help as everyone else! We didn’t show a 20% decrease in pay, but when you net out what we paid in mortgage (and everything else that goes along with a rental) against the pay we got in CA (mind you WA has no income tax, so our pay had a huge decrease even though we actually got raises when we moved), it was certainly more than a 20% loss, however, how do you show that on a W2???? You CAN’T! So if I would have just quit and not found a job, then we would be in a better situation now!!
Let me add that we did complete a Short Sale in June of 2011, and would love to buy again, but it seems that we will not “qualify” for this new “back to work” program the FHA is now offering. It’s just so frustrating!
Hi BH,
I know this isn’t what you want to hear… you can probably buy again in June 2014. 7 months may seem like a long time – however, you can use it to improve credit scores and/or to save up for your down payment or to build your reserves. I would still meet with a local lender asap to start your prequal process.
Have you find a lender to accept this program yet? I think I qualify for this in May since that will be one year after my short sale. Credit score average currently at 702.
Yes, we are offering FHA’s Back to Work program. If you’re buying a home in Washington, I may be able to help you.
Great. I will contact you this May.
Hi I never understand how this all works.
We lost our home in foreclosure back in March 2012. What would we be expected to put down on a home loan and when could we get approved for a home loan again? We are trying to figure out how this all works and when we would be able to buy again.
Hi Sarah,
did your household income drop by 20% or more for a minimum of six months triggered by an economic event? The back to work exception has been difficult for people to qualify for.
If you do not qualify for back to work, you may be able to buy with FHA using 3.5% down payment 3 years following the date your foreclosed property transferred from your name (you’ll need to get a copy of the deed that was recorded on the property to determine that – if you’re buying in WA, I can probably help you with this).
Rhonda, I really appreciate a professionals point of view here so please let me know your thoughts. I’ve been reading more about the FHA Back to Work program and it looks to me like I would not need a final foreclosure to qualify based on what I can find on HUD. The qualifications of the plan state I would need just one of the following to qualify: A) a discharged bankruptcy or B) a short sale or C) a foreclosure. It appears that any one of these would qualify and while my house has still not been foreclosed my bankruptcy that included my mortgage was discharged on 3/25/2011. If I am reading that correctly I would only have to wait for 12 months after a foreclosure OR a bankruptcy discharge unlike the current FHA program that only accepts Foreclosure as a qualifier. My bankruptcy (Including my mortgage) was discharged on 3/25/2011 and I meet or exceed all of the other criteria for the Back to Work program. Does this sound correct or would underwriting kick it back somehow?
Hi Mike, the only way to know if underwriting will kick back your scenario for an FHA Back to Work is to try getting preapproved with a lender. I highly recommending finding a lender who has in-house FHA underwriting and who is direct endorsed with HUD. (My company is and can help people who are buying a home anywhere in Washington state).
Does the Back to Work Mortgage program allow for new home construction?
Lisa, the Back to Work program is an FHA mortgage. So if the home is in a plat being built and ready to occupy at closing, an FHA mortgage could work. An FHA 203k mortgage may also work if you are buying a home that needs rehab or upgrades.
Rhonda, I’m confused as to how the 20% income reduction is calculated. My Job Loss occurred mid-year 2010, so when looking at the the 2009 vs. 2010 tax return, there is no 20% decrease. I had a bonus in early 2010 and my wife and I both had raises in 2010. Then the 2010 vs. 2011 returns do not show a 20% decrease either because late 2011 I started my own business. You don’t really see the 20% reduction using tax forms until you compare 2009 (year before economic event) vs. 2011 (year after economic event). Hope that makes sense.