FHA Extenuating Circumstances From Job Loss

For some home buyers the FHA Underwriting guidelines for folks who previously had a bankruptcy, foreclosure or short sale just got easier!  If a member of your household lost their job for at least six months, then the FHA Extenuating Circumstances From Job Loss guideline changes could mean you can buy a house in North Carolina without having a lengthy waiting period!  The change in approval guidelines shortens the FHA waiting period after Foreclosure, Bankruptcy or Short Sale from three years to one year for those who qualify.

FHA Waiting Period After Foreclosure, Bankruptcy or Short Sale

FHA Home Loans are one of the most sought after programs because of their flexible underwriting guidelines, and common sense approach to mortgage lending.  CNN reported in 2010 that “the recession killed off 7.9 million jobs.”  While we’ve seen many people go back to work, the recession left many families in a horrible situation that was completely out of their control.

This new FHA Home Loan program is ideally set up for folks who had an established home, jobs, good credit – and when the US Economy tanked, they suffered… THEN they got a new job, re-established themselves, and are now ready to buy a home in North Carolina!  If you or your family experienced this pain, the new guidelines are aimed at helping you buy a house!  To qualify you’ll need the following:

• 3.5% for a Downpayment, or you need to qualify for the NCHFA Home Advantage Program which gives you most of your FHA Down payment.  Remember that with FHA, the down payment can be a gift.
• The home loan must be under the FHA Maximum Loan amount established for the county you are buying a home in.  The maximum loan amounts do vary by county in North Carolina, and are subject to change every year (read if you are searching for info on the Internet be certain it’s up to date – we keep our site updated daily).
• Must have 12 months of GOOD CREDIT.  Many times, we see folks who had good credit, had a bump in the road that shook them – and then they go to an “all cash” family economic plan and don’t use credit anymore.  If that’s the situation your family is in, then we will need to look at “alternative” or “non-traditional” credit sources that include:
  • 12 months of rent payments made on time.  There doesn’t appear to be any exception on this, but if you’ve been living with family, and don’t have the rental history, please call us, and let’s look at the total picture.
  • AND you can not have more than one account on your credit report that reported more than one missed payment in the past year
  • AND you can’t have any collection accounts (that are not medical collections or documented identity theft) or judgments filed against you in the past twelve months
• Have a minimum middle credit score of at least … well this is where it’s going to get tricky. FHA Credit Requirements say you only need a middle score of 580.  This program is new, but we do not think many banks will do a loan of this type with a 580 score.  Our BEST GUESS is that you will need at least 2 or your three scores over 600, possibly 620, to qualify for the FHA Home Loan program 12 months after a foreclosure, Bankruptcy or Short Sale.
• Document that a member of the household lost employment for a period of AT LEAST six full months, and that the job loss meant at least a 20% reduction in household income.
• In a situation where the job loss happened to the co-borrower of a mortgage – that co-borrower does NOT have to be on the new mortgage.  We only have to prove that the job loss happened to a person residing in the borrower’s primary residence, that the job loss forced an “economic event” (foreclosure, short sale or bankruptcy) AND that the person was a Co-borrower on the borrower’s previous mortgage.  The way this is written gives us some wiggle room when there’s been a divorce – which we’ve seen happen in these very tough situations.  Again, we’ll just need to document everything.
• If there was not a JOB Loss, but there was at least a 20% reduction in pay for at least 6 months – you may also qualify under this new NC FHA Home Loan Program.  Those who were forced (meaning you didn’t just “volunteer” to have your hours, etc. cut – this was a situation beyond your control) to take a reduction in pay for at least six months need to help us document this as well.  We believe this could also be used for self-employed or commissioned employees who saw a period of reduced income, but have been able to recover during the past year.
• Mortgage Modification Payments during the past year are okay, as long as they’ve been made on time.  If you sold a home (for instance) this summer that had a modification – as long as you’ve been making those payments on time for the last 12 months, we can count that credit as being good 🙂

FHA Waiting Period Extenuating Circumstances From Job Loss

The NC FHA Home Loan program for those who can document that someone in the household lost a job for a period of at least six months, and that there was a loss of income of at least 20% as a result of unemployment, is granted shorter waiting times after the “Event.” This means that the Bank must document that all of the past due accounts, collections put on the credit report, judgments, foreclosures, etc. happened AFTER the job loss.  This program is designed for folks who had good credit, were paying bills on time – lost a job, had to make some really hard decisions, and now has re-established themselves for at least 12 full months.  For all other cases, the FHA waiting period after Foreclosure, Bankruptcy or Short Sale is three full years.

To be eligible for the FHA waiting period after Foreclosure, Bankruptcy or Short Sale of one year – we’ll need to document the following.

• Collection and Judgments have to be dated after the date of the first day of the job loss, and must meet the new analysis for open collection accounts.  (Judgments must be paid in full to qualify for a mortgage loan in NC, since it will interfere with the title to the home).
• Foreclosure or Deed-In-Lieu had to have been recorded at least 12 months earlier.  This is a sticky situation, because some banks got backed up and foreclosed, or accepted deed-in-lieu but didn’t record for another 3 or 4 months.  We must also document that the home wasn’t past due at the time of the job loss – and that the foreclosure was a result of the employment change.
• Short Sale must have occurred at least on year ago, and we have to document pretty much the same as the Foreclosure or Deed-In-Lieu.  Normally, if you’ve had a FHA Loan foreclosed, or FHA lost money because of a Short Sale – you’ll have a huge problem getting another FHA home loan, because you will be “Flagged” in the FHA Database.  With this FHA Home Loan Program, there’s a way for us to help you buy a new home with a NEW FHA home loan, minimum down payment of 3.5%.
• Chapter 13 Bankruptcy needs to be discharged prior making loan application.  There’s a provision about being able to apply while you are still in BK 13, but NO BANKS will do that loan.  You need to be out of the Bankruptcy for a full year, have re-established yourself… and you’ll have to document that you had to go through the BK process because of the employment / income loss.  All bankruptcy payments had to have been made on time. If you are applying for a VA loan, a different type of FHA loan or a USDA home loan, the waiting periods for buying a new home are longer.
• Chapter 7 Bankruptcy with a foreclosed home will require basically the same documentation as a Foreclosure or Deed-In-Lieu.  If the credit report shows that in 2009 you were late on your mortgage 4 times, and in 2010 you were late 3 times, and you had collections on your credit report that year, and then in 2011 you lost your job for 7 months, got more behind and then in February of 2012 you went BK 7 – we are going to have a really hard time getting your loan approved right now.  If there were some OUT OF YOUR CONTROL situations that caused those late payments prior to the employment loss – we MUST document them.

Additionally (yes there’s just a little more) we will need to take you through a credit counseling course.  The Credit Counseling will 8 hours.  If can be broken down into several sessions, and it can be done on the phone.  It’s not like those huge forms you had to fill out for Bankruptcy court – but it is pretty interesting.

I was on a Mortgage Mastermind call this afternoon with lenders who said that this program is so new, it will likely take 90 days to figure out what WILL work, and what will not work for this FHA Home Loan program.  The shorter waiting period is a blessing for many people, and if you are interested in getting more information about your particular situation – please call Steve and Eleanor Thorne 919 649 5058.  We want to help you buy your next home in North Carolina!