Back to Work Program - income reduction documentation

[yepbob]

I am wondering if you have used the FHA Back to Work Program - how or what documentation was needed? We are getting ready to submit our application on March 10th (30 days after the required counseling). I have my income taxes showing that I earned unemployment during the year but will that suffice?

I lost my job and was unemployed for about 4 months before I took an hourly temp job in my field. I was making more than my old job but because I was hourly I only worked. Few hours per week for the first few months and then went to major overtime for a few months. At the end of the year it looks like I overall increased my income but during the first six months of that year my income was non existent and I am the primary wage earner. I also had to commute 120 miles per day at $5/gallon since we could not sell our home and paid Cobra insurance so although my wages look better they significantly were not.

Our house was not foreclosed on nor short saled. We did credit counseling then filed ch 13 bankruptcy which converted to a ch 7 after a challenging pregnancy.

Thoughts on how to document? My broker wasn't sure unless I can get pay statements and this happened in 2007-2008. I had no reason to keep those at the time... I did get my tax return showing the unemployment W2

[StartingOver10]

You say in your post that your house was not  foreclosed upon nor did you short sale your home. What is the current status of your home?

If you sold it in a traditional sale (not short) and you have a discharged Ch 7 you can get a new mortgage 2 years from the discharge date with regular FHA underwriting and less than two years if you have extenuating circumstances. You don't need the Back to Work program if it has been two years.

When was your Ch 7 discharged?

[yepbob]

We relocated and my home was sold - it was not a short sale and was not included in our bankruptcy. We have been renting ever since we sold our house in October 2011.

Bankruptcy was discharged January 2013

[yepbob]

We were in a ch 13 repayment plan for over 2 years before I got pregnant with out last child and had complications which caused me to be off work reducing my income again. And then we moved back to our home state and my husband was unemployed for a time which allowed us to convert the ch. 13 to a ch 7 in Oct 2012

My husband returned to his original job and I have been with the same company for the last 6 years. In fact I got hired permanently at the company if was temping at so have worked here almost 7 years.

This has drug on and on... We have $20k for a downpayment and warn around $110k per year.... I really do not want to wait another year so am attempting the back to work program which my broker recommended

[ShanetheMortgageMan]

Tax returns won't suffice on their own (since that is the entire year in review), there will definitely need to be documentation showing there was a 20% drop in income for at least 6 months.  This is a tricky program and the correct documentation is the difference between getting approved or not.  The easiest way to get this is for your former employer's HR department to state how much your income was at the time you were let go, they can either put something on their letterhead or your loan officer can request them to complete a verification of employment form ... you could also get a paystub, but as you said you no longer have yours.  Documentation of your unemployment income will also be needed, so hopefully you can get something from the state regarding how much you received on a monthly basis (or the total and the dates you recieved it for, which then you could determine how much the monthly amount was).  Then documentation from the temp job would be needed, the HR department again would need to spell out what your income was at that time.  All you need to do is cover the first 6 months after the "economic event", so as long as for that 6 month period your income was 20% or less, then on the day following the 6 month period you could have returned back to your previous income and you could still be eligible for the program.

Your loan officer should have thought about all of this though, if they haven't, then you could be in for a tough time.

[ezdriver]

I have two buyers approved for FHA loan under the BTW program and their income tax returns [for two to three years] are their primary documentation. A letter of explanation has to describe the loss of income that led to the bankruptcy and the loan has to be submitted 30 days after the required counselling. I just submitted my own mortgage app under the BTW program. My tax retuens are my primary documentation. My loss of income was i the 50% range.

[ShanetheMortgageMan]

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@ezdriver wrote:

I have two buyers approved for FHA loan under the BTW program and their income tax returns [for two to three years] are their primary documentation. A letter of explanation has to describe the loss of income that led to the bankruptcy and the loan has to be submitted 30 days after the required counselling. I just submitted my own mortgage app under the BTW program. My tax retuens are my primary documentation. My loss of income was i the 50% range.

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That may work for them and you, but in the OP's situation: "At the end of the year it looks like I overall increased my income but during the first six months of that year my income was non existent and I am the primary wage earner" ... so if you look at the tax return it'll show they made more income than previous it sounds, so tax returns wouldn't work for them.

[ezdriver]

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@yepbob wrote:
I am wondering if you have used the FHA Back to Work Program - how or what documentation was needed? We are getting ready to submit our application on March 10th (30 days after the required counseling). I have my income taxes showing that I earned unemployment during the year but will that suffice?

I lost my job and was unemployed for about 4 months before I took an hourly temp job in my field. I was making more than my old job but because I was hourly I only worked. Few hours per week for the first few months and then went to major overtime for a few months. At the end of the year it looks like I overall increased my income but during the first six months of that year my income was non existent and I am the primary wage earner. I also had to commute 120 miles per day at $5/gallon since we could not sell our home and paid Cobra insurance so although my wages look better they significantly were not.

Our house was not foreclosed on nor short saled. We did credit counseling then filed ch 13 bankruptcy which converted to a ch 7 after a challenging pregnancy.

Thoughts on how to document? My broker wasn't sure unless I can get pay statements and this happened in 2007-2008. I had no reason to keep those at the time... I did get my tax return showing the unemployment W2

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What date did you file ch13 bankruptcy and when was your discharge issued?

What was the reason for filing?

Was a loss of income of at least 20% for at least six months prior to your filing for ch13 bankruptcy?

The answers to those three questions is the framework for your documentation. Your letter of explanation has to lay out the timeline, income levels and connection to your filing for ch13. Your paychecks and letters from employer(s) are your supplemental documents that support the narrative and timeline in your letter of explanation.

Don't be distracted by what your annual income was at the end of the year. 

[yepbob]

So - this is probably a bit complicated and I didn't want to bore you with all the details... but we tried to avoid bankruptcy and did a few things to string our situation along before throwing in the towel.

2004 - graduated with MBA and 1/2 through the year got my "real" first professional job wih good salary

2005 - pregnant with my first child and had pregnancy complicaions so was off for the last part of the year and through March 2006

2007 -  Jan lost my first job with the economy (that company went on to purge almost everyone) - unemployed February, March, and April... started a temp job part time the last week of April and worked part time training hours until August 2007 averaging 15-20 hours per week.  August - December 2007 worked full time and typically 20 hours of overtime most week (so 60+ hour weeks with recruiting)

2008 - continued same part time job until May 2008 when I was hired into the same job at much higher salary but of course giving the overtime

So - my previous tax returns will not ideally show a "typical" loss of 20% because I was earning more in 2004 when I got my real job - but was off for a few months in 2005 reducing my income for the year, then in 2006 was off for the birth of my child for 3 monhs unpaid reducing my overall income and then in 2007 I lost that job.

Working the overtime in an hourly position then made the last half of 2007 look better than the previous 2 years tax returns (2005, 2006) but only because I didn't work because of pregnancy and birth of a child.

I called the temp company I previously worked for and they cannot print off any check statements or verify what I earned per week during 2007 and they no longer use the same record keeping system so the best they could do is provide a start date and a W2.  I already have the W2 but of course that is for the entire 2007 year not for the 6 month period.

I do not have the check statements but I did find my time card submissions that I kept from then because they were emailed to me.  They do not show my hourly rate but they do show and confirm that I worked between 10-20 hours per week during the first few months of that assignment.  And then of course a VOE would also show start/end dates for employers as well as the W2 showing my unemployment earned.

During this situation I kept putting our expenses on credit cards (dumb I know) and with gas at $5/gallon and a giant SUV driving 120 miles per day that also went on credit cards... I just kept thinking that things would get better and that we would get those credit cards paid off... of course then the credit crisis happened and so my cards that previously had a $20k limit were cut off immediately to whatever my balance was - so for example I had a Chase card with $20k limit and a $12k balance - they cut my credit limit to $12k so then I appeared to be maxed out.  And this happened universally with almost every credit card I had.  And I didn't know enough about credit at that time to know that was a huge issue.  We tried to sell our house - it would not sell.  I tried to refinance our house to include the credit cards - and that was when my utilization was killing my credit score even though I had never ever had a late payment.... SO we became unable to afford our credit cards and went into credit counseling.

Not all the credit card companies would agree to that because we owed so much and we tried and tried working with them for months.  Then I finally decided our credit counseling plan wasn't gong to work so we filed for a Ch 13 bankruptcy in March 2010 - 5 year repayment plan.  House not included.  Never late on a mortgage payment.

Paid the Ch 13 payments on time every time until last baby in 2012 and then we converted it to a ch 7 bankruptcy in October 2012.  Finally discharged in January 2013.  So our lives have pretty much sucked for the last few years....

So very few people really understand this Back to Work program so I am having a difficult time - I finally found a lender in my area who claims to know how to do them but until I can "formally" apply she hasn't wanted my documentation.  I have been trying to get as much as I can to provide to prevent any issues.  I know that this program could work for us if I can find the right person who knows how to accurately administer and submit.  I am just worried on how to "prove" beyond a doubt about the income reduction of 20% over 6 months... beyond the W2 from the unemployment.

[ShanetheMortgageMan]

The start date from the temp agency is a good start (pun not intended), you have the W-2 from them, so you would just need an end date to determine what period of time you received that income over.  The temp agency should have that end date information.

The lender you are working with may have logistical limitations in that to open a file on you it has to become an application, thus they'd have no way to store any of your information/documentation until you officially applied, which would need to be at least 30 days after you took counseling.  There should be workarounds, but perhaps their compliance department is very strict and doesn't offer those (a lot of lenders have become very concerned about appearing to violate any lending or guideline laws).  If waiting to begin until 3/10/14 isn't a big deal, then I wouldn't let it bother you.  You won't be able to get a VOE from your past employers anyway, it has to be sent directly from the lender to your employer to be completed (can't pass through your hands).

You should work on getting beginning/end dates for when you received the unemployment, and also polish up a letter of explanation on the timeline leading up to filing the Ch 13, converting it to the Ch 7, and the discharge.  You have already laid out the basics, just need to add a little more detail (month/year is best, rather than just the year) including specific employers names, the income amount you received, as many specific examples of trying to get your financial house back in order as possible.  You want the underwriter to read it and say "Wow, this person had zero other options other than to file BK".  That is especially important because the economic event was in 2007 but you are trying to get an exception for a Ch 7 BK discharge in January 2013, and underwriters usually like to see a much tigher timeframe between the two events.  It can happen, just remember that documentation is key.