If you are a potential first-time homebuyer or a repeat homeowner who has faced previous financial difficulties, now is a great time to take a step into the housing market for the FHA’s new homebuyer loans.
The FHA created a program designed for anyone who has faced an economic event — any occurrence beyond the borrower’s control that results in a loss of employment or a loss of income of 20 percent or more for a period of at least six months. If you can relate, here are three things you should know about the “Back To Work” program.
1. This loan is designed for families who are regaining financial stability
“Back to Work” was launched to save families who would otherwise be turned away from lending agencies and banks. Since events like foreclosure and bankruptcy stay on a borrower’s credit history for up to seven years, most lending agencies don’t want to risk the chance of a negative event happening again. However, the FHA has recognized that an economic event does not determine whether a borrower can fully recover and repay a loan. The program reduces the long waiting period after losing a home to only 12 months. Normally, families have to wait several years. The program also allows borrowers to put only 3.5 percent down with no premiums or fees at closing.
2. Prospective borrowers must be able to provide proper documentation
Lenders will offer a second-chance mortgage to almost any borrower who qualifies. To be eligible, each person who is signing the loan must be able to provide the lender with proper paperwork that shows proof of a past economic event. The family must also meet general requirements in terms of employment, income and credit. To begin, make clear copies of each signer’s driver’s license and social security card. Gather other necessary items, such as 30 days worth of recent pay stubs, tax returns, W-2 forms, and bank statements. Your statements should include all of your checking and savings accounts, any 401K and other stock accounts. Also be sure to gather the proper documentation for other additional income, such as child support, alimony, Social Security or a pension award. Your lender will need to see all of these items, and possibly a few others, to determine if the “Back to Work” program is right for your situation.
3. The FHA requires participants to complete one hour of housing counseling
For borrowers to become eligible for the FHA’s affordable home-mortgage loans, lenders ask prospective borrowers to complete housing counseling at least 30 days, but no more than six months prior to submitting a loan application. Counselors are required to address the cause of the economic event to ensure borrowers know how to avoid making the same mistakes twice. They also help families create and assess a household budget and teach them how to avoid scams. The overall goal of counseling is to better prepare families for future financial shocks and instill good financial habits.
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