Back to Work Mortgage Lenders Look for Ready Borrowers

Three steps to take before talking to home mortgage lenders

As of August of last year; the Federal Housing Administration (FHA) has offered a new mortgage option for families who have faced extenuating circumstances. Back to Work mortgage lenders allow families who have faced foreclosure, bankruptcy, short sale and other significant economic events to apply for a new loan only 12 months after losing a home. During that waiting period, there is much that can be done to better prepare families for a new mortgage.

1. Raise your credit score
Although it’s easier said than done, raising your credit score could make a significant difference in whether a lender will consider you a “good risk.” For lending agencies, the more creditworthy you are, the more likely you will be able to make payments on time. The Back to Work home loan does not allow credit scores below 500. To ensure you will be accepted, setup payment reminders in your online banking system. A text message or e-mail will remind you when upcoming bills are due. You could also consider setting up automatic payments, which will debit payments straight out of your account on the date you wish. Paying bills on time is the most contributing factor in boosting your credit score. Decreasing how much debt you owe is another important factor. Create a payment plan in which you pay off your highest-interest cards first, while continuing to maintain minimum balances on your other accounts.

2. Attend housing counseling
The Federal Housing Administration requires borrowers to participate in at least one hour of housing counseling. This must be completed a minimum of 30 days but no more than six months prior to submitting a new mortgage application. Although borrowers typically frown upon counselors, it can be an enlightening and empowering experience to learn how to take control of your financial life. Counselors teach borrowers how to become better prepared for future financial shocks and how to avoid scams, among many other insightful topics. The FHA requires counselors to address the cause of a family’s economic event. The agency must be approved by the U.S. Department of Housing and Urban Development. A list of participating agencies can be found at www.hud.gov.

3. Assess your budget
Determining how much money you can spend each month on mortgage payments is an important step before a family begins home shopping. Begin by making a budget, listing different household categories and how much they cost each month. Items like food, car insurance, gas, Internet, cell phones and childcare should all be included. Small purchases, like birthday gifts and movie tickets, can add up quickly if you are not budgeting how much is being spent. Each time you make a purchase, add it into a written spreadsheet or excel file to keep track. Subtract all of your monthly expenses from your monthly income to determine what kind of a mortgage you can afford. Don’t forget to leave money for savings, too.

Clarifying New Back to Work Lending

An explanation of the “Back to Work” loan’s confusing terms

On August 15th of last year, the Federal Housing Administration relaxed its guidelines for borrowers who have “experienced periods of financial difficulty due to extenuating circumstances,” according to Mortgagee Letter 2013-26.

The terminology throughout the mortgagee letter isn’t written for regular folks. Many of the terms used to describe the Back to Work - Extenuating Circumstances program could cause interested families to shy away. However, the program isn’t as complicated as it may seem.

The FHA is considering those who can document an economic event, which the administration defines as “any occurrence beyond the borrowers control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.”

In other words, an economic event can be foreclosure, short sale, deed-in-lieu, loan modification, forbearance agreement, Chapter 7 bankruptcy or Chapter 13 bankruptcy. If you can provide documents that show when and where employment was lost, you should be eligible.

Throughout the letter, the term “borrower” includes both the main borrower as well as the co-borrower. Anyone who signs a mortgage is considered a borrower. A “household member” is a person who lived at the borrower’s residence during the economic event and was a co-borrower on the previous mortgage.

The “onset of an economic event” is the date in which the event occurred. This date also starts a family’s waiting period, the length of which is decided by the FHA lending agency. New “Back to Work” lending allows families to apply for a new mortgage only twelve months after losing a home. Normally, the waiting period after foreclosure and short sale is three years, and two years after bankruptcy.

Recovering from a significant reduction in credit from an economic event can take up to seven years. Through “Back to Work,” recovering families have a second chance to refinance. However, credit scores below 500 are not eligible for the program.

To be eligible for a Back to Work loan program, you must have a 12-month credit history that is clear of late housing, installment debt payments, delinquency and other derogatory credit issues. The letter defines this as “satisfactory credit,” meaning you are a good risk to lenders if the guidelines are met.

Borrowers are also required to attend “housing counseling,” which is a one-hour session with a U.S. Department of Housing and Urban Development approved agency. Counselors help borrowers create a household budget and teach them how to avoid making the same financial mistakes twice. The cause of the economic event must be addressed during counseling.

Recovering from an economic event is a long-term process, but the “Back to Work” program is available to help the millions of Americans who are facing financial hardship. Don’t let the mortgagee letter’s confusing terminology turn you away. Speak with a mortgage and lending expert in person or online for more information.

Raise Your Credit For The Back to Work Mortgage Loan

A “Back to Work” home mortgage requires satisfactory credit; are you eligible?

The “Back to Work” mortgage loan has been in full swing since August of last year. Millions of Americans are now eligible to apply for a new home mortgage loan if they have faced an extenuating circumstance as a result of the housing market crash of 2008.

A “Back to Work” home mortgage requires satisfactory credit, which takes a significant hit after an economic event. Credit scores below 500 are not allowed in the program, but borrowers with no credit score remain eligible. Having satisfactory credit proves you are good risk to lending agencies, meaning you have a higher probability of repaying your mortgage on time — exactly what agencies are looking for. Use the following tips to guide your credit score in “Back to Work’s” direction.

Make payments on time
Although it sounds simple, the most defining factor in your credit score is whether your payments are made on time or not. The Back to Work program requires a 12-month credit history that is clear of late housing, installment debt payments, delinquency and other derogatory credit issues. Set up payment reminders with your online banking system. The reminder will send you a text message or e-mail notifying when your payment is due.

Don’t pollute your credit report
Instead of using a bunch of different cards for small amounts, have a go-to credit card. If you have multiple credit cards with small balances, pay them off. Your score will consider how many different cards have balances. However, don’t panic and cancel all of your cards — that can hurt your score, too.

Keep good debt
Many borrowers believe that old debt appearing on their credit report diminishes their score; this is actually false. If you have debt that you handled well and paid back on time, keep it on your credit report. The longer the history of good debt, the better your credit score is. This proves to lenders that you are a good risk that will be able to make payments on time. Negative debts will disappear from your credit report after seven years, but adding a history of good debt is not harmful.

Don’t obsess over the number
Making quick significant changes in your credit usage usually indicates risky behavior. Lending agencies want to know that you will be able to repay your Back to Work mortgage in stable increments. If you are denied credit, the lender is required by law to show you the credit report it used to make its decision (Dodd-Frank Wall Street Reform and Consumer Protection Act). Be responsible for your bills and don’t obsess over your credit score. If you make smart financial decisions, the number will revive itself. If you remain concerned, speak with a credit expert on how to handle your specific credit history.