Will Back to Work Program Lenders Think You’re At Good Risk?

Lenders follow procedure to determine if borrowers are eligible for new home mortgage loans

An economic event like foreclosure, short sale or bankruptcy gives borrowers a handful to worry about. Recovering from extreme credit issues is a long process that takes years to amend. What’s more stressful then wondering if a new mortgage lender will consider you creditworthy, or in other words, a good risk?

Mortgage lenders carefully inspect the backgrounds of each of their loan applicants. Lending money to buy a home is a long-term risk that should not be taken lightly, especially with prospective borrowers who have histories of negative economic events. Although borrowers are obligated to make loan payments on time, that is not always the case, especially when a borrower has a poor credit history.

Even though the Federal Housing Administration’s Back to Work program is designed for families with previous financial hardships, lenders continue to look for satisfactory credit in their borrowers. This implies that borrowers with late housing, installment debt payments, delinquency and other derogatory credit issues are not accepted into the program.

The mortgage process usually begins with a lending representative interviewing the prospective borrowers face-to-face, online or by phone. Many lenders will offer loans to eligible families before they ever shop for a new home. This option allows borrowers to have an idea of how much money they have to work with, thus saving them time and preventing disappointment. Borrowers should be sure to bring their bank account numbers, credit card bills, pay stubs, W-2 forms and other proof of employment history.

The most important document during this process is the loan application. The application will give your lender the opportunity to assess your risk value and creditworthiness for a new mortgage. There will be questions about your income, liabilities, credit, assets and the home you wish to buy.

Once a lender is able to prove a borrower’s eligibility, the lender will analyze the risk of lending to establish an appropriate interest rate and loan term. There is no standard or formula for offering rates, but most lenders follow the rates of government-related agencies.

Back to Work program lenders allow borrowers to put down only 3.5 percent on a new loan with no premiums nor fees at closing.

If it’s possible to offer you a loan, lenders typically do what they can to make it happen. However, “Back to Work” program lenders do not want to approve a loan where the borrower will have late payments and eventually become delinquent. The best thing you can do while you’re waiting is to boost your credit score. Your local mortgage expert will be able to provide tips on how to raise credit while in your specific situation.

Back to Work Program Lenders

Did you have a past financial hardship (lost job, reduction in income, etc.) that caused you to lose your home?  If you had a foreclosure or declared bankruptcy but are now regaining your financial stability feel encouraged.  A new home may be in your near future!  You may qualify for a new home loan under the Federal Housing Administration Back To Work Program.  The Federal Housing Administration (FHA) recognizes that many homeowners struggled with unemployment or wage reductions as a result of the recent recession.  These extenuating circumstances made borrowers unable to meet their monthly mortgage payments.  Unfortunately the result was they ultimately lost their homes.  If this situation describes you be reassured.  The new Back to Work Program allows borrowers to purchase a new home 12 months after the previous foreclosure or bankruptcy.    

1st Alliance Lending is a Back to Work Program Lender that will work closely with you to help you navigate your options for returning to home-ownership.  We will guide you every step of the way.  

1st Alliance Lending can help you determine if you meet the FHA loan requirements which include documenting the mortgage issues you experienced that were caused by the financial hardship, showing that you have rebounded and re-established your credit, and completing housing counseling.  To verify that you have re-established your credit you need to pay your rental payments on time for 12 months and not be 30 days late on more than one other loan payment.  The housing counseling course is approved by the Department of Housing and Urban Development (HUD).  The course counselor will work closely with you to verify your ability to afford the mortgage, help you establish your household budget and explain the loan application process and mortgage insurance.  This will help insure success with your new home.

1st Alliance Lending takes pride in helping borrowers obtain mortgages they can afford long term.  We frequently work with borrowers who have had a financial hardship and are re-entering the housing market.  We want to help you have a successful mortgage long into the future.  Contactus if you would like to find out more about the Back to Work program.

The Back to Work Lending Program Changes the Future of Mortgages

What happened in 2008 and what the Back to Work loan program is doing now

When a dramatic rise of mortgage delinquencies and foreclosures began to spark in 2007, the housing market had no path of return after many financial institutions closed their doors by Sept. of 2008. Housing experts note that the crash’s main cause was sub-prime lending; this is referring to loan arrangements with high interest rates for borrowers with poor credit histories.

From 2004 to 2006, sub-prime mortgages rose from 8 percent to 20 percent, according to the University of North Carolina’s Department of Statistics. Over 90 percent of sub-prime mortgages in 2006 were adjustable rate, meaning its rate will change in accordance with the market’s conditions. By 2007, adjustable rates began to reset with higher interest rates, causing higher monthly payments for borrowers. The number of mortgage delinquencies began to soar and global investors became uninterested in purchasing mortgage-related securities.

Borrowers began to dramatically change financial paths, applying for foreclosure, short sale, deed-in-lieu, forbearance agreement, loan modification, Chapter 7 bankruptcy and Chapter 13 bankruptcy. The Federal Housing Administration (FHA) now calls each of these financial situations “economic events,” which happen in result of a loss of employment or income of 20 percent or more for a period of at least six months.

After five years of battle, the FHA developed the “Back to Work - Extenuating Circumstances” program to help recovering families. Traditionally, lending agencies required borrowers to wait several years before applying for a new mortgage loan after an economic event. Through the program, families may apply for a new mortgage only 12 months after losing a home. Borrowers may put down 3.5 percent on a mortgage with no premiums nor fees at closing.

Lenders must be able to verify and document a borrowers’ loss of employment or income through a written document that shows evidence of a termination date or where a prior employer is no longer in business.

Interested borrowers are required to complete housing counseling, which is a one-hour session with an expert approved by the U.S. Department of Housing and Urban Development. Counseling must address the cause of the economic event and may be completed in person, online or by phone.

Mortgagee Letter 2013-26 states, “Housing counseling is an important resource for both first-time home buyers and repeat home owners.”

The Back to Work lending program also requires all borrowers to have a satisfactory credit history for at least 12 months. Credit scores below 500 are not allowed in the program, but borrowers with no credit score remain eligible. Late housing, installment debt payments and delinquency negatively affect a borrower’s eligibility.

Distressed families still looking for a new home mortgage can contact a lending agency that offers the Back to Work loan program. The program runs through Sept. 30, 2016.

The Back to Work Lending Program Supports New Homebuyers

The two most beneficial tips for recovered home-buyers back in the market

The Back to Work loan program has made it possible to apply for a new mortgage only 12 months after an economic event. After a situation like bankruptcy or foreclosure, it can be frightening to begin the move from an apartment or another shelter, to a house that you can call your own. Here are two often-forgotten ideas that will make your transition smoother.

1. What is your budget?

This may seem like a silly question, but many families don’t know what they can afford. It is easy to overestimate what is affordable when each living cost is yet to be pieced together.

Earnest money is the deposit made on a home after a family submits an offer. This proves to the seller that you are serious about buying the house. A down payment is an initial and partial payment made at the time of settlement. The Back to Work lending program allows borrowers to put down only 3.5 percent on a new mortgage.

As soon as you move in, there will be other factors to consider as well, like heating and cooling, water and electricity. Don’t forget other living expenses, such as food, internet, cable, car insurance, fuel and cell phones.

To avoid making the same mistakes twice, families should have a back-up plan for handling the loss of employment or income. If the main provider lost his or her job, would the family be able to continue paying the mortgage? Does the family have a sufficient savings plan?

Calculating these numbers can become complicated and stressful, which is why most families avoid budgets. However, it becomes much easier when families keep track in an Excel file or other documenting program. “Back to Work” lending program participants are required to complete at least one hour of housing counseling, in which the counselor can help create or assess a household budget.

2. Create a “wants” and “needs” list.

Although a fireplace, a finished basement or backyard pool sound great. Extra wish-list items only make homes more costly, especially when there are other financial factors to consider. Your family’s needs should be your first priority.

Location is key. Consider how close your desired location is to your job, your children’s school and the supermarket. Look into whether public transportation is an option and if the garage will fit your family’s vehicle. Some neighborhoods have strict rules about parking on the street, fencing and sheds.

Townhouses, condominiums and duplexes will each have different ways of landscaping and disposing of garbage. Creating a list of what will be truly beneficial to your family will narrow your choices down to the perfect home that will make the “Back to Work” loan program a successful one.