FHA Back to Work Program Guidelines and Down Payment Requirements

FHA Back to Work Program

Borrowers with a prior bankruptcy, foreclosure, deed-in-lieu, or short sale may be eligible for an FHA insured loan if the bankruptcy, foreclosure, deed-in-lieu, short sale was the result of a documented extenuating circumstance.

Borrowers may also be eligible for an FHA insured loan on a purchase transaction after 12 months from the completion, discharge, trustee's sale if the borrower meets the requirements for extenuating circumstances Economic Event.

A few key items for borrowers applying under the enhanced guidelines:

Purchase transactions only
The borrower must complete Housing Counseling no more than thirty (30) days prior to application. The counseling cannot be completed after application.
The borrower must use on of HUDs approved Housing Counseling Agencies. FHA will require a copy of the certification of counseling completion and a copy of the disclosures provided by the Housing Counseling Agency.

To be eligible for these enhancements, borrowers must have experienced a minimum of 20% reduction to the household income for duration of at least six (6) months. Written VOE’s from previous employers and tax returns will be required for all household members; this can require verifying prior income and employment for individuals not on the new transaction.

Household income is defined as all parties on the prior Note/Deed of foreclosed property even if they are not on the new transaction. If there was no prior mortgage/foreclosure, then the guidelines are applied to the borrowers of the current loan. Borrowers must have a satisfactory credit history prior to the Economic Event. Borrowers with habitual late pays, disregard for credit, mismanagement are not eligible for these enhancements.

January 20, 2010 - Credit score

FHA announced a set of policy changes to strengthen the FHA. The changes announced are the latest in a series of changes enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.

The Federal Housing Administration insures FHA loans and did not used to require a minimum credit score. The new FHA policy changes requires a minimum credit score of 580 for 3.5% down payment and anyone purchasing a home with a score lower than 580 will require 10% down payment.

The FHA has taken the following step:

Update the combination of credit scores and down payments for new borrowers
New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program
New borrowers with less than a 580 credit score will be required to put down at least 10%