Filing for bankruptcy has become a common occurrence for people today. It used to be very rare that people had to file and if they did, they kept it to themselves. After the downfall, the economy took, however, banks had to come up with different ways to help people in these situations build their credit back up and become homeowners once again. One agency that offers the best program is the FHA. This government program makes it possible for you to obtain a mortgage just 12 months after your bankruptcy is discharged with their Back to Work Program.
What is the Back to Work Program?
The Back to Work Program is a branch of the standard FHA program. It has similar qualifications requirements, such as a 580 credit score and 31/43 debt ratios. Where it differs, though is the exceptions it provides to people that suffered a bankruptcy, foreclosure, or other negative economic event in the past. These people are granted an exception after just 12 months of the discharge of your bankruptcy or the sale of your home in foreclosure. There are certain requirements they must meet in order to qualify, including:
- You must be able to prove that your income declined at least 20 percent during the time period that you filed for bankruptcy or foreclosure
- The decrease in your income must be a one-time occurrence and occur as a result of something that was outside of your control. This could include a sudden illness or injury or the loss of your job as a result of the company downsizing or closing.
- You must prove that you have overcome the decrease in your income and have picked the pieces back up. The lender will look for a “perfect” 12-month credit history over the last 12 months.
- You must have a good credit history prior to the economic event that you suffered from, helping to prove that it really was a one-time occurrence
The Standard Bankruptcy Guidelines
If you were to apply for a standard FHA loan, you would be subjected to the following guidelines:
- 2 years would have to pass after the discharge of your bankruptcy
- If the BK was a Chapter 13, you would have to gain approval of the trustee overseeing your case to ensure that you can take on another loan
- 3 years would have to pass after your house was sold in foreclosure
Why the Back to Work Program Works
Many people wonder why the FHA grants exceptions for certain people after filing for bankruptcy or foreclosure, after all, aren’t they a risk just like everyone else? The truth is that this program rewards the people that suffered unforeseen circumstances, most commonly people that lost their jobs unexpectedly, but then picked themselves back up and got their lives back on track. The program is very precise in looking for a recovery from the event including a solid credit history over the last year and an increase in your income after overcoming the issue that occurred. The FHA guarantees these loans for lenders, so if you were to default again, the FHA has the lender’s back, making it possible for lenders to give borrowers that were dealt a bad hand another chance at home ownership.
You cannot use the Back to Work Program if you have a history of bad credit or if you did not have a one-time occurrence of a 20 percent decrease in your income. It is not a program for everyone – it is strictly for those that were forced to deal with things outside of their control and want to pick up the pieces again.