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FHA Back to Work Program

This article discusses a recent change in 2013 for FHA loan qualifying. It shortens the waiting period after a bankruptcy, short sale, foreclosure.

In 2013 HUD issued mortgagee letter 2013-26 "Back to Work".  Essentially, this letter applies to a borrower who experienced an "Economic Event" which resulted in a foreclosure, bankruptcy, short sale, or other negative impact on their credit AND whose loan application for FHA financing was issued a "Refer" recommendation by TOTAL Scorecard or received an Accept/Approve but had to be manually downgraded. These are the automated loan application systems that mortgage brokers will access to process your loan application for FHA financing.

If the borrower can document that the delinquencies and indications of derogatory credit are the result of an Economic Event and they have completed a satisfactory Housing Counseling and meet all other HUD requirements for FHA financing, the waiting periods are shortened after these events.

An Economic Event is any occurence beyond the borrower's control that resulted in a Loss of Employment, Loss of income or both of these,  which caused a reduction to the borrower's household income of 20% or more for a period of at least 6 months. There must have been a recovery period after the event where the borrower's income returned and satisfactory credit was reestablished for at least 12 months. The borrower must document the reduction in the Household income of 20% or more for a 6 month period. This can consist of a written termination notice from the employer, or other publicly available documentation of the business closure. Also documentation of unemployment insurance documentation is acceptable.

In regards to loss of income based on seasonal employment, the lender must document a 2 year history of seasonal employment in the same field just prior to the loss of income. For part-time employment a continuous part-time employment history must be documented for 2 years just prior to the loss of income.

In addition, the lender must verify and document that all collections and judgments showing on the credit report were the result of the Economic Event and at least 12 months have elapsed since a foreclosure or deed in lieu of foreclosureArticle Search, and that this happened due to the Economic Event. The same 12 months goes for a short sale and Chapter 7 bankruptcy. For a Chapter 13 bankruptcy the lender must verify and document that the Chapter 13 was discharged prior to the loan application and all required bankruptcy payments were made on-time. (minimum 12 month period)

All participants in this FHA program must receive homeownership counseling or a combination of homeownership education and counseling provided from a HUD approved counseling agency. For more details please visit the FHA loan page

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Scot King is a California mortgage broker . His company, Pacific West Capital has been helping homeowners to refinance and homebuyers to purchase housing since 2002. He has been in the mortgage industry since 1998 and his company is an Accredited BBB business with an A+ rating. For more information about qualifying for a mortgage refinance visit the mortgage refinance page.

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