If you lost your job during the recent economic downturn, there's a good chance you may have lost your home as well. However, if you're employed again, you may already be able to qualify to buy a new home through the FHA's "Back to Work" program.
The program allows those who lost their home due to a financial hardship to obtain a mortgage to buy a new home in as little as one year after losing their home through foreclosure or similar circumstances, even in the event of a bankruptcy.
You can even use the program to buy a new home if you didn't actually lose your old one - persons who suffered financial hardships that forced them to obtain a mortgage loan modification or forbearance can qualify as well. In fact, it can even be used by first-time buyers who never owned a home but merely suffered a serious financial hardship.
The FHA also allows its usual minimum 3.5 percent down payment on homes purchased through the Back to Work program.
Must prove extenuating circumstances
To qualify, you must be able to show that the financial hardship you suffered was a situation beyond your control - loss of a job by you or your spouse, reduced earnings due to the economic slowdown, a medical crisis, etc. To be eligible, the hardship you suffered must have resulted in at least a 20 percent loss of income for at least six straight months prior to the foreclosure, bankruptcy or other event.
You also must be able to show that you have financially recovered from the crisis and that you have maintained perfect credit for at least 12 months since that time - paying all other bills, including rent payments, in a timely manner during that period. Any debt deficiencies from your crisis period must have been resolved as well.
You'll need to be able to document both your previous loss of income and the fact you've been able to re-establish your earnings since then. The program also requires that applicants undergo HUD-approved housing counseling before they can be approved for a new mortgage.
Finding a lender
Unfortunately, not all mortgage lenders participate in the Back to Work Program. Loans through the program must be obtained through an FHA-approved lender and even then, individual lenders may decline to participate.
The official minimum FICO credit score required to qualify for a Back to Work mortgage is only 500, but participating lenders may have their own requirements. In some cases, they may require a FICO credit score of 620 or 640, which may be a difficult standard for a borrower to meet only one year after a foreclosure or bankruptcy.
On the positive side, the FHA does not require any additional fees or higher interest rates charged simply because a mortgage is obtained through the Back to Work program, aside from the higher rates normally charged to borrowers with low credit scores. Individual lenders may have their own add-on fees, however.
To get the process started, find an FHA-approved lender who participates in the Back-to-Work program, and a HUD-approved housing counselor.
The program will be in effect through at least Sept. 30, 2016.