Qualifying for a new mortgage after a financial crisis isn’t easy. Millions of families are still recovering from the housing crash of 2008. The Federal Housing Administration (FHA) recognized the problem last summer when it launched its “Back to Work” lending program, which offers today’s best home mortgage loans for recovering families.
The program is designed for families that have faced an economic event that caused a loss of employment or income of 20 percent or more for a period of at least six months. This includes foreclosure, short sale, deed-in-lieu, forbearance agreement, Chapter 7 bankruptcy, Chapter 13 bankruptcy and loan modification.
These new home-buyer loans offer a second chance at the American dream with a shortened waiting period. In fact, families can now apply for a new mortgage only 12 months after losing a home. Outside of the program, the waiting period after losing a home typically lasts several years.
Am I eligible to participate?
Eligible borrowers must first meet basic requirements by the FHA that include basic standards for employment, income and credit. Next, the main borrower and any co-signers must be able to prove they have faced an economic event. This can be shown through W-2 forms or almost any document that shows a loss of employment or income.
Most importantly, lenders look for prospective borrowers who have made a full recovery since the occurrence of the economic event. Borrowers must have credit scores higher than 500. Your 12-month credit history report should be clear of late housing, installment debt payments, delinquency and any other derogatory credit issues. Borrowers with no credit score whatsoever remain eligible.
If you have had trouble making on-time payments, try setting up automatic payments through your bank’s online system. It’s an easy and convenient way to ensure you will never miss deadlines. Lenders also like to see that prospective borrowers are far below their credit limits. Although it’s easier said than done, try paying down your debts as much as possible.
Last, but not least, the FHA requires all “Back to Work” participants to complete housing counseling. The session must last at least one hour with an agency approved by the U.S. Department of Housing and Urban Development. Counseling should also be completed at least 30 days, but no more than six months prior to submitting a loan application. If you are in this range of time, a list of approved agencies can be found at www.hud.gov.
Counselors help borrowers create and assess a household budget. This will ensure your family and lending agency that you know how to make smart spending decisions and will be able to make your mortgage payments in full every month. Interested borrowers should speak with a lender that offers “Back to Work,” which is offered in all 50 states through Sept. of 2016.
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