Moving Ahead After a Foreclosure

The housing market debacle that occurred in 2008 is still giving millions of US citizens stress. Many families are yet to recover completely from the difficult situations they had to face. Families invest their biggest resources into buying a home. Even more than money, it takes a world of emotions and dreams to build homes. Losing a home can be a very distressing situation, emotionally as well as in financial terms.

Many people, owing to loss of income and other negative economic events, had to lose the ownership of their much loved home due to a foreclosure. A foreclosure is a legal process in which the mortgage lenders force the sale of the asset (home, in this case) used as a collateral in the loan documents. Following the years after the economic recession of 2008, even people with good credit scores faced extenuating financial circumstances.

As per Mortgagee Letter 2013-26, people who went through a foreclosure are eligible to be a part of the Back to Work Home Mortgage Loan program. This program, which gives would be homeowners a second chance at mortgage after foreclosure, was welcomed by borrowers as they no longer had to wait for three years to seek a new home loan. The program reduced the waiting period to just one year after the foreclosure date.

If you have been through a foreclosure, it is best to look for a Federal Housing Administration (FHA) approved lender who assures you of sustainability throughout your loan duration and helps you with the new program. Borrowers have time till September, 2016, as the program will not be in effect after that.

When taking part in the program, you will not face any premium on your interest rate or additional closing fees.

To be eligible, borrowers need to meet a few requirements. They must submit documentation to prove that they have been through adverse financial situations.

HUD Mortgagee Letter 2013-26 defines an economic event as, "Any occurrence beyond the borrower’s control that results in a loss of employment, loss of income or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months”.

Borrowers must demonstrate a strong intent to make future payments, and thus lenders look for job stability in borrowers. Borrowers must attend a counseling session on mortgage loans before applying. Further, a minimum credit score of 500 is a pre-requisite. However, those with no credit scores also qualify for the Back to work home mortgage loan. Also, the credit history should be without any delinquency in the last 12 months of applying.

The Back to Work program has made life better for millions of Americans, giving them a second chance at mortgage after a foreclosure.

Home Mortgage Lenders Jargon Defined

A guide to understand the language that Back to Work program lenders are using

Whether you’re a first-time home-buyer or a repeat homeowner, some of the terms mortgage lenders use may seem confusing and even intimidating. However, their language really isn’t as complex as it may seem. Use this guide to decipher the “Back to Work” home loan process and become better prepared to meet with a lender.

Mortgage
A mortgage is a document that specifies that the home you are buying is a collateral item for the money you are borrowing. In other words, if you fail to make payments, your home will get taken away. Lenders hold the right to take possession of any property upon a borrower’s failure to repay a loan.

Good Faith Estimate (GFE)
A GFE is a document that shows an estimate of all of the fees and costs of a new mortgage. Lenders must complete this document within three days of a borrower submitting a loan application. When the document is completed, the lender will mail it directly to you. Prospective borrowers use this document to compare fees between different lenders and to better prepare for the overall cost of a new mortgage.

Credit History
A credit history is a financial record that shows how you have handled money and debts. Oftentimes, a person’s credit history will determine if they may qualify for a loan and the rate at which it must be paid back. A credit report shows if you have promptly paid bills, how much available credit you have and your total outstanding debts.

Annual Percentage Rate (APR)
An APR is an interest rate that is expressed numerically in annual terms. An APR always includes additional costs (such as mortgage insurance and broker fees), which is why it always higher than a regular interest rate. An APR can help borrowers easily compare rates charged by other lenders.

The Federal Housing Administration (FHA)
The FHA features loans that are insured by the U.S. Department of Housing and Urban Development. These loans are known for having low down payments. Back to Work program lenders allow borrowers to put down only 3.5 percent with no premiums or fees at closing.

Origination Fee
An origination fee is often required to be paid when a borrower is applying for a new mortgage. This fee is used to cover the cost of the application, appraisal and any follow-up work associated with a new mortgage.

Debt-To-Income Ratio
Home mortgage lenders look at debt-to-income ratio to ensure a borrower will be able to repay a loan. Lenders compare monthly payments, including the potential new mortgage, to the borrower’s monthly income. The result is displayed as a percentage.

Equity
Equity is the difference between the value of the home and the mortgage loan. In general, the equity on a home will increase over time as the value of the home increases and the amount of debt on a loan decreases.

How to Approach a Second-Chance Mortgage After Foreclosure

Beginning a new home loan application through “Back to Work”

Don’t be intimidated by complex loan processes; use these steps to help you get back in the housing world after foreclosure.

1. Find the right lender
 Most lending agencies and banks turn away families who have faced substantial economic events in fear that it will happen again. However, agencies that offer the “Back to Work” program are understanding and will listen to your story. They have experience handling financial problems just like yours. The program is offered at lending agencies in all fifty states, which is designed for families who need a second-chance mortgage after foreclosure or another economic event.

2. Take housing counseling
You may be surprised by what you could learn from a housing counselor. Although your economic event may have been out of your control, a housing expert could provide you with life-changing financial advice. The FHA requires all “Back to Work” participants to complete at least one hour of one-on-one housing counseling. The agency must be approved by the U.S. Department of Housing and Urban Development and take place at least 30 days, but no more than six months prior to submitting a new loan application.

Housing counseling is designed to help families avoid making the same mistakes twice. They teach how to avoid scams and how to create and assess a household budget. Perhaps most importantly, they teach how to avoid repeating the same economic event again. This gives borrowers and lending agencies confidence that beginning a new home loan is a good idea.

3. Boost your credit
Although an event like foreclosure will stay on your credit history report for up to seven years, it’s never too early or too late to start boosting your credit score. “Back to Work” participants must have credit scores above 500. Borrowers must be able to provide a 12-month credit-history report that is clear of late housing, installment debt payments, delinquency and any other derogatory credit issues. Those with no credit whatsoever remain eligible.

4. Gather documentation
All “Back to Work” borrowers must be able to provide proof of a previous economic event. This can be shown through a Verification of Employment (VOE), W-2 form, old pay stubs or signed tax returns from the past two or three years. Lenders will also want to see recent copies of your pay stubs (30 days worth), and a clear copy of both your driver’s license and Social Security card.

If you receive additional income from Social Security, child support, alimony or a pension award, provide proof that will verify it. Also bring bank statements from the past two or three months from every checking and savings account you have, as well as 401K or other stock accounts. Any person who is signing the loan should bring all of these documents to apply for a new mortgage. This will help determine your financial situation after foreclosure and if the “Back to Work” loan is the right second-chance mortgage for your family.