Foreclosure, Short Sale, Deed in Lieu, Bankruptcy
FHA ( Back to Work Program)
This is brand new program released by FHA and will help millions of Boomerang Buyer come back to the market just 12 months after foreclosure,short sale or BK subject to meeting some program conditions.
In all cases, the lender must verify that the derogatory credit was the result of an Economic Event and document that a minimum of 12 months has elapsed since the date of the:
- deed in lieu
- short sale
- discharge of Chapter 7 bankruptcy
- Chapter 13 Bankruptcy The lender must verify and document that • the Chapter 13 bankruptcy was discharged prior to loan application and all required bankruptcy payments were made on-time, or • a minimum of 12 months of the pay-out period under the bankruptcy has elapsed and all required bankruptcy payments were made on time, and • the bankruptcy was the result of an Economic Event If the bankruptcy was not discharged prior to loan application, the borrower must receive written permission from the Bankruptcy Court to enter into the mortgage transaction.
The lender must review the credit report and determine whether derogatory credit was the result of an Economic Event:
- The borrower exhibited Satisfactory Credit prior to the Economic Event Onset;
- The borrower’s derogatory credit occurred after the Economic Event Onset, and
- The borrower has re-established Satisfactory Credit for a minimum of twelve (12) months.
FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances. Many borrowers experienced periods of recession related financial difficulty and/or credit impairment resulting from unemployment or a severe reduction in income. FHA recognizes the hardships faced by these borrowers, and that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. For Purchase transactions with case numbers assigned on or after August 15, 2013 through September 30,2016: FHA will allow consideration of borrowers who have experienced an Economic Event and can document that certain negative credit ratings resulted from loss of employment or significant loss of Household Income beyond the borrower’s control; and the borrower has demonstrated full recovery from the event and completed housing counseling.
An Economic Event is any occurrence beyond the borrower’s control that results in:
- A 20 percent or more reduction in a borrower’s Household Income for a minimum period of six months resulting from a Loss of Employment, Income or a combination of both. An Economic Event includes the following definitions:
- Onset of an Economic Event: The month of loss of employment/income.
- Recovery from an Economic Event: The re-establishment of satisfactory credit for a minimum of 12 months.