FHA’s “Back to Work” Program : A Solution for Buyer’s with previous Distressed Sales

If things in the mortgage business sound too good to be true, then they generally are. I tend to be a little skeptical of many of these government hardship programs when they first come out. These programs sound great in theory but the requirements are usually vague and therefore they are slow to be implemented.  There has been a lot of buzz regarding FHA’s new “Back to Work” program.  Its purpose is to qualify buyers who have had a distressed sale or bankruptcy over 12 months ago. A distressed sale is categorized as a short sale, foreclosure or deed in lieu. Typically, with FHA loans, a buyer must wait at least three years before applying for a new loan after a distressed sale and a minimum of two years following a Bankruptcy.  However, the “Back to Work” program has taken into consideration that many people were negatively impacted by the economy through job loss or decreased wages which contributed to an increase in distressed sales and bankruptcy. Here is a summary of the key qualification requirements for this program per FHA:


  • To qualify a buyer must show that the distressed sale is complete and occurred over 12 months prior. On the same note, a bankruptcy must have been filed and discharged over 12 months prior.


  • A buyer must provide a viable hardship letter and also document a 20% loss of income for at least 6 months through tax returns and a verification of employment.


  • The buyer must show that he has overcome his hardship along with reestablished credit accounts, if applicable. He must not have incurred any late payments over the last 12 months.


  • A buyer must attend a HUD approved “Pre-Purchase Counseling” seminar before his application date.  This is very important: he must do this before signing a contract or applying for a loan.


I have found that very few investors and banks have yet to adopt this program. The reason for this is likely because this program is relatively new to the market and attracts higher risk clients. FHA has made it clear that they are sincere about making this program work for potential candidates.  Like any new program, it generally takes some time to fully understand the requirements before the investors and the marketplace embrace it.  We experienced this with the HARP refinance program, which is now frequently offered by investors and banks. The “Back to Work” program has a lot of moving parts but it can be very successful for the right client.  Of course, my next goal is to assist buyers and realtors in utilizing FHA financing again so these buyers can get into their dream homes.