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FHA Loan Back to Work Program

The FHA discontinued its Back to Work program indefinitely on September 30th, 2016. Prior to being discontinued, the FHA Back to Work program offered a route to homeownership for Americans who experienced recent economic hardship, declared bankruptcy or had their previous home foreclosed on. It shortened the waiting period to apply for a loan through most lenders from 36 months to 24.

Back to Work Program Alternatives

While there is no direct alternative to the FHA Back to Work program in 2020, home buyers shouldn't lose hope. The FHA grants exceptions for those with extenuating circumstances similar to those outlined in the Back to Work Program like serious illness or death of a wage earner. Otherwise, there is typically a 3-year waiting period required for those who've experienced a previous foreclosure.

The waiting period for FHA loans is lenient compared to conventional lenders who usually require up to 7 years. Borrowers still need to meet the minimum credit score requirement, which is generally the lowest among all mortgage loan types.

What was the FHA Back to Work Program?

The FHA Back to Work program was created by the U.S. Department of Housing and Urban Development to extend mortgage options to consumers with economic hardships or financial events.

For traditional FHA loans and conventional loans, lenders required consumers to wait 36 months after an economic event like a foreclosure or bankruptcy before applying for a mortgage. The FHA Back to Work program reduced this period to just 24 months for those who qualified and could prove the extenuating circumstances that led to their financial hardship.

FHA Back to Work Program Requirements

To qualify for the FHA Back to Work program, you had to be able to prove that your bankruptcy, foreclosure, short sale or other economic event was caused by extenuating circumstances.

These extenuating circumstances could include:

  • Job loss
  • A reduction of your household income by 20% or more for a period of at least 6 months
  • Medical reasons

Some examples that may have qualified for the FHA Back to Work program included getting laid off or having your hours significantly reduced, the death of a primary wage earner in your household, or a serious illness that kept you from work or led to significant medical debt. Divorce and difficulty selling your property due to a job transfer or relocation did not qualify as extenuating circumstances.

Your lender would have required documentation verifying that you:

  • Had positive payment history on all credit accounts for the past 12 months
  • Had recovered from the bankruptcy, foreclosure or other economic event that you experienced
  • Were currently financially stable
  • Had completed housing counseling

You needed to prove that you had recovered from the economic hardship (by securing a new job, catching up on your overdue accounts, etc.) and that your current financial situation was stable and consistent. You also needed to meet the basic requirements of an FHA loan, which include having a minimum 580 credit score and a 3.5% down payment on the home.

Qualifying Hardships and Economic Events

There are a number of financial hardships and economic events that fell under the FHA Back to Work program umbrella.

These included:

  • Bankruptcies (both Chapter 7 or 13)\
  • Short sales
  • Foreclosures (and pre-foreclosure sales)
  • Deeds-in-lieu
  • Loan modifications
  • Forbearance agreements

As long as your financial event was caused by a job loss, a reduction of income by 20%, or medical reasons — and you could produce documentation to prove this — you may have qualified for the reduced waiting period. This meant you could apply for a loan only 24 months after the event.

Housing Counseling

The final requirement of the FHA Back to Work loan program was a one-hour housing counseling session with a HUD-approved agency. These sessions could typically be done online, in person or over the phone.

The counselor would walk you through the financial responsibilities of buying a home, taking out a mortgage and maintaining your property. They also helped you create a household budget and give you helpful resources to use in your home buying journey. Once completed, you could apply for your FHA loan with a lender of your choosing.