Second Chance Mortgages Offer Hope to Potential Homebuyers
The Federal Housing Administration (FHA) has recently announced a new program that will help families, who lost their homes during the recession, buy a new home. Borrowers will now have a second chance at owning a home after a brief one-year waiting period, rather than having to wait three years before applying for a mortgage.
The FHA has labeled this the Back to Work lending program. It’s meant specifically for families who lost their home through foreclosures, deeds-in-lieu, bankruptcies, or short sales, through conditions that were beyond their control. The applicants must be able to document that they suffered extenuating economic circumstances, including either being laid off or income reduction of at least 20 percent, and that they have recovered.
This program is in effect from August 15, 2013 through September 30, 2016.
To be considered, borrowers must:
- Show extenuating economic circumstances that were beyond the borrower’s control;
- Show full recovery from that event;
- Complete housing counseling prior to being approved for the loan.
This process may seem a bit strenuous, but it is in place to ensure that borrowers who are approved for this program are well prepared for the responsibility of a new mortgage. The counseling in particular is meant to inform home buyers of mortgage options available to them, assisting in assessing their budget, and showing where they can find reliable resources.
Extenuating economic circumstances are expected to be shown through a written Verification of Employment documenting loss of employment, signed tax returns or W-2s.
What to reflect in the one-year financial history:
The lender will be expected to review the credit history of the applicant for the previous 12-month period, prior to approving the loan. The credit history should prove full financial recovery from the economic hardship. The credit report needs to show the following:
- No late payments on housing, including any rental
- No late payments on any credit accounts
- No collection accounts (excluding medical or identity theft)
This is great news for homeowners who were affected by the recession. The FHA is allowing responsible borrowers the opportunity to show that even through difficulties they have tried their best to meet all of their obligations and that they are worthy of a second chance.