As published in the Savannah Morning News - 1 September 2013
Waiting to Sell? Some more great market news!
The market is hot, hot, hot! Last week I gave you 11 reasons why you should get off the fence and sell now. Now here’s another that is sure to inject a slew of new buyers into the market.
Friday, August 16, the Federal Housing Association (FHA) pulled a rabbit out of their hat, shortening the waiting period for homebuyers who are now “seasoning”. I have written several articles about these buyers, who must wait to buy again after experiencing a bankruptcy, foreclosure or short sale. The last six years, has been challenging, and many people have lost jobs, homes and their self esteem.
The FHA has realized that it needed to soften up its requirements for some of these buyers. This is for buyers who meet FHA approval, which make up a large percetnage of people stuck in watiting periods after bankruptcy, foreclosure or short sale.
The FHA is cutting the amount of time that homebuyers must wait after a bankruptcy, foreclosure or short sale to one year before they may qualify for an FHA-backed mortgage. Previously, buyers had to wait two years after bankruptcy and three years after foreclosure or short sale. But in order to qualify, borrowers will need to prove their household income fell by 20 percent or more for at least six months; that the income drop was tied to unemployment or another event beyond their control; that they have had at least one hour of approved housing counseling; and that they have had a full year of on-time housing payments, among other things.
“FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” said FHA Commissioner Carol Galante, in a letter to mortgagees announcing the changes. Dubbed the "Back To Work - Extenuating Circumstances Program", the
FHA removed the familiar waiting periods that typically followed a derogatory credit event.
If you've experienced any of the following financial difficulties, you may be program-eligible :
Chapter 7 bankruptcy
Chapter 13 bankruptcy
The FHA realizes that, sometimes, credit events may be beyond your control, and that credit histories don't always reflect a person's true ability or willingness to pay on a mortgage. Use the Q&A below to learn more about the FHA's Back to Work - Extenuating Circumstances program.
What are the minimum eligibility requirements of the FHA Back To Work program?
In order to qualify for the FHA Back To Work program, you must meet several minimum eligibility standards. The first is that you must have experienced an "economic event" (e.g.; pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification, forbearance agreement). The second is that you must demonstrate a full recovery from the event. And, third, you must agree to complete housing counseling prior to closing. You must also show that your household income declined by 20% or more for a period of at least 6 months, which coincided with the above "economic event".
How do I document a 20% loss of household income for the FHA?
In order to document a 20% loss of household income, you must present federal tax returns or W-2s, or a written Verification of Employment evidencing prior income. For loss of income based on seasonal or part-time employment, two years of seasonal or part-time employment in the same field must be verified and documented as well. Income afterthe onset of the economic event, which should represent a loss of at least 20% for at least six months, should be verified according to standard FHA guidelines. This may include W-2s, pay stubs, unemployment income receipts, or other. Your lender will help you determine the best method of verification.
How do I document a "satisfactory" credit history since my "economic event" for the FHA?
Your lender will review your credit report as part of the FHA Back To Work approval process. All accounts will be reviewed -- ones which went delinquent and ones which remained current. Your lender will attempt to determine three things -- that you showed good credit history prior to the economic event; that your derogatory credit occurred after the onset of the economic event; and, that you have re-established a 12-month history of perfect payment history on major accounts. Minor delinquencies are allowed on revolving accounts.
Does the "20 percent loss of income" eligibility condition apply to me only, or to everyone in the household?
The "20 percent loss of income" eligibility condition applies to everyone in the household. If one member of the household lost income as the result of a job less but the household income did not fall by 20 percent or more for a period of at least months, the borrower will not be FHA Back to Work Extenuating Circumstances-eligible.
Nice to see FHA recognize that sometimes, bad things happen to good people. Economic events that were beyond a homeowner’s control were forcing millions of Americans to sit and wait before they could buy again. This policy change makes sense and should allow responsible borrowers back into the housing market.