FHA Back To Work Program


The FHA back to work program (1) allows homeowners who have experienced foreclosure (5), a short sale (6) deed-in-lieu (7), or bankruptcy (8) to reapply for mortgage credit within 12 months (3) (9). The reason for your foreclosure, short sale, and so on has to have been caused by an economic event (10) (11), an economic downturn (12) (13), or even job loss (14) (15) as a result of the economic downturn (16). And, a loss of income (17) of at least 20 percent. You have to have maintained a good credit score (18) since that time. That means that even though you may have been forced to sell your home on a short sale or into bankruptcy (19) (20), you have maintained good credit history, and made your payments on time (2) (4). Also, in order to be able to qualify under the program, the prospective borrower needs to go through counseling (21).

You need to have a counseling session one-on-one for at least an hour at least 30 days before you apply for a new mortgage. The FHA Back to Work program recognizes the fact that it is the economic downturn that caused the loss and not the borrower.

The FHA realizes that, that this situation is not necessarily representative of the ability or willingness to repay the debts on time on the side of the borrower. Therefore, part of this FHA Back To Work program is to demonstrate that even though the borrower encountered this experience, the payments are still made on time. The borrower should also demonstrate a satisfactory credit history and as a result, are qualified to introduce an application for a new mortgage.

What is the FHA Back to Work Program?

The FHA Back To Work Program is a distinctive type of FHA home loan that supports prospective borrowers during a financial difficulty through the diminishing of the waiting interval to apply successfully for an FHA Loan after a bankruptcy filing, a short sale or a foreclosure has taken place.

The FHA Back To Work program is a mortgage loan program available via the FHA which reduces the waiting period to purchase a home after bankruptcy, foreclosure, or short sale. To qualify for the program, mortgage borrowers must meet standard FHA loan requirements, document prior financial hardship, re-establish responsible credit history, and attend a brief homeowner counseling program.

The Federal Housing Administration sponsored “Back to Work – Extenuating Circumstances” program is a mortgage loan counseling program designed to shorten the waiting time to buy a home for a potential borrower following a financial hardship. According to HUD, if you have had a foreclosure, short sale, deed-in-lieu of foreclosure, or have declared bankruptcy, you may qualify for a new home loan if you are back to work and can document the extenuating circumstances. Mortgage rates remain the same as any other FHA loan. There is no premium on your interest rate and no additional fees at closing. The Back to Work Program does not affect your mortgage rate. The program is not limited by loan size. The FHA will insure up to your county’s FHA loan limit.

The far-reaching magnitude of 2008’s economic downturn necessitated a change in doing business as usual. For example, home owners faced with foreclosures or short sale scenarios who previously held FHA fixed-rate mortgages would usually have to wait 36 months before purchasing another home. In 2013, the Federal Housing Administration unveiled a plan to help beleaguered homeowners known as, its “Back to Work Program.” It changed the long-held practice of a 36-month waiting period and now allows buyers to purchase a primary residence just 12 months after a short sale, foreclosure or deed in lieu of foreclosure.

Minimum Credit scores are required, a score below 580 is not currently allowed, which is a standard FHA mortgage guideline, but borrowers with no credit score whatsoever are still eligible. You were also still eligible for the program if you are currently unemployed.

The FHA discontinued its Back to Work program indefinitely on September 30th, 2016. Prior to being discontinued, the FHA Back to Work program offered a route to homeownership for Americans who experienced recent economic hardship, declared bankruptcy or had their previous home foreclosed on. It shortened the waiting period to apply for a loan through most lenders from 36 months to 24.

The program waives the traditional 3-year waiting period after a foreclosure, short sale, or deed-in-lieu to apply for an FHA loan, eligible participants can buy a home in as little as one year. This program can be used for both first-time home buyers and repeat home buyers.

When the Department of Housing and Urban Development announced the FHA’s Back to Work program, it was very good news for any potential FHA loan applicant who may have experienced previous “Economic Events” or related fiscal hardship (and/or lowered FICO scores) as a result of the recession.

Programs Similar To The Fha Back To Work Program

While there is no direct alternative to the FHA Back to Work program in 2020, homebuyers shouldn’t lose hope. The FHA grants exceptions for those with extenuating circumstances similar to those outlined in the Back to Work Program like serious illness or death of a wage earner. Otherwise, there is typically a 3-year waiting period required for those who’ve experienced a previous foreclosure.

The waiting period for FHA loans is lenient compared to conventional lenders who usually require up to 7 years. Borrowers still need to meet the minimum credit score requirement, which is generally the lowest among all mortgage loan types.

Difference With A Standard FHA Loan

The program waives the traditional 3-year waiting period after a foreclosure, short sale, or deed-in-lieu to apply for an FHA loan, eligible participants can buy a home in as little as one year. This program can be used for both first-time home buyers and repeat home buyers.

The FHA Back to Work program was created by the U.S. Department of Housing and Urban Development to extend mortgage options to consumers with economic hardships or financial events.

For traditional FHA loans and conventional loans, lenders required consumers to wait 36 months after an economic event like a foreclosure or bankruptcy before applying for a mortgage. The FHA Back to Work program reduced this period to just 24 months for those who qualified and could prove the extenuating circumstances that led to their financial hardship.

FHA Back to Work Program Requirements

To qualify for the FHA Back to Work program, you had to be able to prove that your bankruptcy, foreclosure, short sale or other economic event was caused by extenuating circumstances.

These extenuating circumstances could include:

  • Job loss
  • A reduction of your household income by 20% or more for a period of at least 6 months
  • Medical reasons

Some examples that may have qualified for the FHA Back to Work program included getting laid off or having your hours significantly reduced, the death of a primary wage earner in your household, or a serious illness that kept you from work or led to significant medical debt. Divorce and difficulty selling your property due to a job transfer or relocation did not qualify as extenuating circumstances.

Your lender would have required documentation verifying that you:

  • Had positive payment history on all credit accounts for the past 12 months
  • Had recovered from the bankruptcy, foreclosure or other economic event that you experienced
  • Were currently financially stable
  • Had completed housing counseling

You needed to prove that you had recovered from the economic hardship (by securing a new job, catching up on your overdue accounts, etc.) and that your current financial situation was stable and consistent. You also needed to meet the basic requirements of an FHA loan, which include having a minimum 580 credit score and a 3.5% down payment on the home.

  • To qualify for a FHA loan after a Chapter 7 Bankruptcy –  2 years after discharge
  • To qualify for a FHA loan after a Chapter 13 Bankruptcy – discharge is not needed but 12 on time payments must be made
  • To qualify for a FHA loan after a Short Sale – 3 years since short sale
  • To qualify for a FHA loan after a Foreclosure – 3 years after foreclosure.

The program is not limited by loan size. The FHA will always insure up to your area’s local FHA loan limit. Your lender, however, may not.

If your lender will not make a loan big enough for your needs, find another FHA-approved lender. There are many of them.

Via the program, you can buy a home 12 months after filing for Chapter 13 bankruptcy, 12 months after a deed-in-lieu of foreclosure, and 12 months after a short sale.

To qualify, you must previously have experienced an “economic event” such as a pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification, or forbearance agreement. Then you must demonstrate that you have fully recovered from that economic event. You also have to agree to complete housing counseling before closing. Lastly, you must be able to show your household income dropped 20 percent or more for a period of at least 6 months, which coincided with the economic event. The 20 percent income loss applies to everyone in the household. If one member of the household lost income as the result of a job loss but the household income did not fall by 20 percent or more, the borrower will not be eligible. The 20 percent loss of income can be demonstrated through federal tax returns, W-2s, pay stubs, or unemployment income receipts. To demonstrate that you have had satisfactory credit since your economic event, your lender will review your credit report. All credit accounts will be scrutinized and your lender will check to see if; a) that you have displayed a responsible and trustworthy credit history prior to the economic event; that the bulk of derogatory credit occurred after or during the economic event; and, that you have re-established a consistent 12-month period of perfect payment history on major accounts. It is important to note that revolving accounts may have minor delinquencies. If you are still in Chapter 13 bankruptcy, you must have written permission from the Bankruptcy Court Trustee to enter into the mortgage. This means clearly that if your Chapter 13 bankruptcy has not been discharged prior to the date of your loan application, you must have written permission from Bankruptcy Court to enter into the purchase transaction.

If you’ve experienced any of the following financial difficulties, you may be program-eligible :

  • Pre-foreclosure sales
  • Short sales
  • Deed-in-lieu
  • Foreclosure
  • Chapter 7 bankruptcy
  • Chapter 13 bankruptcy
  • Loan modification
  • Forbearance agreements

The FHA realizes that, sometimes, credit events may be beyond your control, and that credit histories don’t always reflect a person’s true ability or willingness to pay on a mortgage.

Downpayment

FHA back to work program down payment is 3.5% of the value of the home.

Qualifying Hardships and Economic Events

There are a number of financial hardships and economic events that fell under the FHA Back to Work program umbrella.

These included:

  • Bankruptcies (both Chapter 7 or 13)
  • Short sales
  • Foreclosures (and pre-foreclosure sales)
  • Deeds-in-lieu
  • Loan modifications
  • Forbearance agreements

As long as your financial event was caused by a job loss, a reduction of income by 20%, or medical reasons — and you could produce documentation to prove this — you may have qualified for the reduced waiting period. This meant you could apply for a loan only 24 months after the event.

You can use the FHA Back To Work program if you are unemployed. And you can use Unemployment Income receipt to document that you were out of work.

The job loss resulting from an employer going out of business is Back-to-Work eligible. Your lender will ask you to provide a written termination notice or publicly-available documentation of the business closure.

FHA Back To Work

The FHA Back To Work Extenuating Circumstances Program

The FHA Back To Work – Extenuating Circumstances program is the FHA’s “second chance” for mortgage applicants who have experienced financial hardship as a result of unemployment or a severe reduction in income.

FHA Back To Work Program Success Stories

This is an example of how the FHA Back to Work Program can help someone. Keep in mind that this is just one example and your personal scenario would need to be examined by an underwriter.

Michael is a finance manager for a medium-sized company on the west coast. The company decides to move their corporate office to the west coast and as a result, Michael loses his job. While he is looking for a new job, he falls behind on his payments and eventually has to file for bankruptcy. Soon after, Michael finds a new job as a finance manager and re-establishes his credit.

In this situation, Michael can apply for an exception under the FHA Back to Work Program if he can show that the company move resulted in his job loss and his financial hardship.

FHA Back To Work Counseling

The final requirement of the FHA Back to Work loan program was a one-hour housing counseling session with a HUD-approved agency. These sessions could typically be done online, in person or over the phone.

Your housing counselor will not help you shop for FHA mortgage rates. However, many counselors can help you read a Good Faith Estimate which may help you make better lending decisions.

The housing counseling required by the FHA Back To Work program will address the cause of your economic event, and help you consider actions which may prevent recurrence.

You do not have to take the housing counseling in-person. Housing counseling may also be conducted by phone or via the internet. The housing counseling required will typically last one hour.

In order to qualify for this program, all applicants must agree to undergo housing counseling. This counseling is required by the Back to Work Program to address the cause of your economic event and to help prevent a similar event in the future. The housing counseling usually only lasts an hour and can also be done in person, by phone, or via the Internet. During this session, a counselor will talk with and provide advice to you regarding home buying, defaults, foreclosures and credit issues.

You are not automatically approved for the FHA loan if you complete the housing counseling required. You must still qualify for the FHA mortgage based on Federal Housing Administration mortgage guidelines. The completion of the housing counseling does not necessarily mean that you have been approved for the FHA loan. You must still follow the FHA mortgage guidelines to be qualified.

The counselor would walk you through the financial responsibilities of buying a home, taking out a mortgage and maintaining your property. They also helped you create a household budget and give you helpful resources to use in your home buying journey. Once completed, you could apply for your FHA loan with a lender of your choosing.

This was because FHA isallowing for the consideration of borrowers who have experienced an Economic Event and can document that

  • Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
  • The borrower has demonstrated full recovery from the event; and,
  • The borrower has completed housing counseling.

That last requirement originated the counseling required.

FHA Mortgagee Letter 2013-26 says the FHA Back To Work program lets lenders evaluate these Economic Events to see if the borrower may still be a good credit risk for an FHA loan. “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

The required counseling is an important part of the Back To Work program offered by the FHA, but many aren’t sure where to look for this counseling. The FHA official site says any such counseling session must meet certain requirements.

“To qualify for purposes of establishing Satisfactory Credit following an Economic Event, participants in this FHA initiative must:

• receive homeownership counseling or a combination of homeownership education and counseling provided that each participant receives, at a minimum, one hour of one-on-one counseling from HUD-approved housing counseling agencies, as defined at 24 C.F.R. 214.100.”

“The counseling must address the cause of the economic event and the actions taken to overcome the economic event and reduce the likelihood of reoccurrence. The housing education may be provided by HUD-approved housing counseling agencies, state housing finance agencies, approved intermediaries or their sub-grantees, or through an on-line course, and be completed a minimum of thirty (30) days but no more than six (6) months prior to submitting a loan application to a lender, as application is defined in Regulation X, implementing the Real Estate Settlement Procedures Act, 24 C.F.R. 3500.2(b).”

FHA Back To Work counseling “may be conducted in person, via telephone, via internet, or other methods approved by HUD, and mutually agreed upon by the borrower and housing counseling agency, as provided for in the regulations at 24 CFR 214.300 and in the Housing Counseling Handbook.”


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In creating this special program, the FHA reaffirms its mission and gives families a second chance at home ownership. It is scheduled to be available until September 30, 2016. It is designed to allow those who have gotten back on their feet financially to bypass the long waiting period that was previously standard procedure.

In addition to showing that one’s economic situation has improved, the FHA Back to Work Program has a number of eligibility requirements. The main one is that the previous homeowner must present specific documentation that proves financial problems led to the loss of their home. Please be aware that conditions such as previous loan modifications, Adjustable Rate Mortgage (ARM) recasting, divorce, and one’s inability to rent a proposed investment property, are not considered grounds for program participation.

To qualify, one must prove that a loss of income of 20 percent or more for at least six months prior to the chain of events that resulted in the loss of the home occurred. For example if you were forced to take a 20 percent pay cut due to fewer hours or a reduction in salary – and your income went from $100,000 to $80,000 annually, and this took place six consecutive months before you lost the home, then you would likely be eligible.

In order to participate in the Back to Work Program, it will be necessary to provide detailed paperwork and documentation from your employer. Examples of required documentation include proof of lower year-to-date earnings with pay stubs within the dates your income dropped, plus W-2s and/or tax returns that show lower reported wages within that time frame.

Also, to submit an application to an FHA-approved lender, a prospective borrower must first take a “Pre-Purchase Counseling” course with a HUD-approved housing counseling agency. This needs to happen 30 days before one starts the application process. Next, a certified counselor will assess the applicant’s debt, ability to afford the mortgage, aspects of the mortgage, explain mortgage insurance and the loan application process. The counseling session must be completed at least 30 days before applying for a new FHA mortgage. The counseling seminar certificate is valid for 6 months.

Next, the FHA expects the prospective borrower to show that they have indeed gotten back on solid ground with employment, income and outstanding debt. Another big requirement is that one’s credit score is at least 640. More proof of an improved economic picture is to show a 12-month positive credit history on other outstanding debts.

In order to become qualified for the Back to Work Program, it is absolutely vital for the prospective borrower to provide detailed and thorough documentation on the above-mentioned points. This is due to the fact that although this is an assistance program of sorts, today’s lending guidelines are a bit stricter, even through the FHA. Bank records, credit scores, and details from one’s employer are absolute musts when seeking a new loan.

Stay on top of things by checking your credit score and finding out what you can do to improve it. Consumers are able to obtain a free credit report annually. Having a look at your credit report before applying for a mortgage enables you to see a clear picture of your financial state of affairs. Check on yours by contacting one of the following credit bureaus:

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Frequently Asked Questions

Can I use the Back to Work as a first-time home buyer?

Yes, you can use the program as a first-time buyer or as a repeat home buyer, and for an FHA 203k construction loan. The program waives the agency’s three-year waiting period after experiencing a foreclosure, short sale or deed-in-lieu.

It also waives the agency’s two-year waiting period. You no longer need to wait two years to apply for an FHA loan after experiencing a Chapter 7 or Chapter 13 bankruptcy.

The program can be used by anyone who’s experienced a pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification; or who has entered into a forbearance agreement.

You can apply for an FHA Back to Work – Extenuating Circumstances mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.

Mortgage rates are the same as mortgage rates for any other FHA loan. There is no premium on your interest rate, nor are there additional fees to pay at closing. Your FHA mortgage rate will be unaffected by the FHA Back To Work program.

What are the minimum eligibility requirements of the FHA Back To Work program?

In order to qualify, you must meet several minimum eligibility standards.

The first is that you must have experienced an “economic event” (e.g.; pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification, forbearance agreement).

The second is that you must demonstrate a full recovery from the event. And, third, you must agree to complete housing counseling prior to closing. You must also show that your household income declined by 20% or more for a period of at least 6 months, which coincided with the above “economic event”.

How do I document a 20% loss of household income for the FHA?

In order to document a 20% loss of household income, you must present federal tax returns or W-2s, or a written Verification of Employment evidencing prior income.

For loss of income based on seasonal or part-time employment, two years of seasonal or part-time employment in the same field must be verified and documented as well.

Income afterthe onset of the economic event, which should represent a loss of at least 20% for at least six months, should be verified according to standard FHA guidelines. This may include W-2s, pay stubs, unemployment income receipts, or other.

Your lender will help you determine the best method of verification.Verify your home buying eligibility (Mar 26th, 2021)

How do I document a “satisfactory” credit history since my “economic event” for the FHA?

Your lender will review your credit report as part of the FHA Back To Work approval process.

All accounts will be reviewed — ones which went delinquent and ones which remained current. Your lender will attempt to determine three things — that you showed good credit history prior to the economic event; that your derogatory credit occurred after the onset of the economic event; and, that you have re-established a 12-month history of perfect payment history on major accounts.

Minor delinquencies are allowed on revolving accounts.

The “20 percent loss of income” eligibility condition applies to everyone in the household. If one member of the household lost income as the result of a job loss, but the household income did not fall by 20 percent or more for a period of at least months, the borrower will not be FHA Extenuating Circumstances-eligible.

Further Reading

We have interesting articles about non-conventional mortgage loans. The basic ones we will recommend to you are: stated income loans, where we discuss if they are currently legal or not, how can you obtain one, and the situation of these loans in California. We are also covering other non-conventional mortgages, such as the ITIN mortgages.

No doc hard money loans and the very similar hard money construction loans.

If you are into conventional mortgages, we suggest you read the following related articles.

We explain the FHA loan requirements completely, with the current limits for this year. We also go through the appraisal guidelines, and moreover, we are worried about the peeling paint and why it can be an issue.

Completing forms is necessary, so we also study the number format of an FHA case and how to submit an FHA file, how to complete the form HUD 92900, the form for the FHA notice to the homeowner, and the FHA Financing Addendum.

Regarding special housing programs, I would like to include the FHA Back To Work Program.

Furthermore, there are two conflicting situations that can occur that are the situation of a conditional commitment and the identity of interest.

David Laidler

I am David, economist, originally from Britain, and studied in Germany and Canada. I am now living in the United States. I have a house in Ontario, but I actually never go.  I wrote some books about sovereign debt, and mortgage loans. I am currently retired and dedicate most of my time to fishing. There were many topics in personal finances that have currently changed and other that I have never published before. So now in Business Finance, I found the opportunity to do so. Please let me know in the comments section which are your thoughts. Thank you and have a happy reading.

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