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FHA's "Back To Work" Program

by Mark Rieger, Mark Rieger Realty

Just recently, the Department of Housing and Urban Development on Thursday created a new set of guidelines under the FHA program specifically geared toward homeowners and prospective homeowners affected by the recent recession. The program is called the “Back to Work” program.

 

The FHA stated, “As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. 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."

 

The Back to Work program will require prospective borrowers to document the nature of the economic event that resulted in their derogatory credit. They will also have to prove that there has been a recovery from said event. For the purposes of this program, an “economic event” is defined as "any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of twenty (20) percent or more for a period of at least six (6) months.  The ‘Onset of an Economic Event’ is the month of loss of employment/income." 

 

Lenders will consider the event to have caused the derogatory credit if:

 

  • The prospective borrowers had satisfactory credit prior to the event onset;
  • The prospective borrowers' derogatory credit occurred after the onset of the event;
  • The prospective borrowers have reestablished satisfactory credit for at least 12 months since the end of the event.

 

Lenders will consider borrowers to have reestablished satisfactory credit if:

 

  • The borrower has no late housing or installment debt payments for the past 12 months;
  • Open mortgage accounts are current and have been paid on time for the past 12 months;
  • Borrowers have adhered to the agreement of any open modification plan for the past 12 months;
  • Borrowers complete a course of Housing Counseling in person, via telephone, via internet or other methods approved by HUD (who provides a list of counseling agencies). 

If you believe you could benefit from the “Back to Work” program, you can apply for an FHA Back to Work mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.

How To Get A Mortgage If You Are Self Employed

by Mark Rieger, Mark Rieger Realty

There are a lot of perks to being self-employed. You get to make your own decisions, be your own boss, and determine your hours. However, if you are self-employed and trying to Buy a home, you may come across some obstacles.

 

If you are self-employed, you will need to prove your income with tax returns rather than using a “stated-income” loan. Your loan will be based on your last two years of tax returns, which could consequently show reduced income for some self-employed people.

 

If your income increases between years one and two, the lender generally averages the two. If the second year’s income is lower, the lender will sometimes use the second year’s number.

 

People who are self-employed generally try to write off as many expenses as they can for tax purposes. However, this tax strategy could be detrimental when applying for a mortgage loan. Since mortgage eligibility is based on net income, all those business deductions could ultimately count against the borrower. If you foresee a home purchase in your future, you may want to consider what you include in your tax deductions.

 

In addition to proving income, borrowers have to prove their business exists. For some lenders, two years of income tax returns are sufficient. However, other options for verification may include a statement from an accountant, a business license, or copies of 1099 income statements.

 

If you run your own business, having a year’s worth of mortgage payments liquid and in reserve in a savings account can boost your prospects for a mortgage loan.

 

If you don’t have two years of solid tax records or don’t have enough in savings, but you still want to purchase a home and feel you are financially ready, you may want to consider a qualified co-signer to help you secure a loan. Make sure the prospective co-signer also has his or her own finances in order. Borrowers who have less than two years of records will need to have a strong co-applicant on the transaction. Usually, lenders look more favorably on someone who will also occupy the home with you.

 

If you have any questions, or if you are looking to Buy or Sell a home or property in central Oregon, please let me know.

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