Loan Modification

Short Sale Guidelines For FHA Loans

By Peter G. Miller

Across the country short sales are becoming more common, deals where an owner sells a home for less than the value of the mortgage WITH approval of the lender.

But what about FHA loans and short sales? Can you get an FHA mortgage after a lender has taken a loss on a short sale?

The answer to the question, at least for the moment, is stashed away in a letter to lenders from HUD, Mortgagee Letter 9-52.

Conditions

To start it should be mentioned that lenders and mortgage insurers hate short sales because they’re being asked to take a loss on a loan. That said, there are some conditions under which FHA mortgages are available even after a short sale.

First, if you were current on your loan at the time of the short sale then the FHA loan program is open to you.

As HUD explains:

“Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage

___All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and

___All installment debt payments for the same time period were also made within the month due.”

Late Payments

What about if you missed a mortgage payment? Ah, bad news:

“Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
Borrowers in Default at the time of Short Sale”

Okay, and what about owners who have been in the FHA’s pre-foreclosure program? Nope, bad news again.

“Borrowers who sold their property under FHA?s pre-foreclosure sale program are not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.”

Are there exceptions to the rules? Yes.

“Lenders may make exceptions to this rule for borrowers in default on their mortgage at the time of the short sale if

____ The default was due to circumstances beyond the borrower?s control (such as death of primary wage earner, long term un-insured illness, etc.), and

____ The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower?s control that caused the default.

What if I have a short sale that does not meet FHA standards? When can I get an FHA mortgage in the future?

You’ll have to wait at least 36 months before you’re eligible for an FHA loan.

For specifics, speak with FHA lenders. Be sure to have the lender look at your credit report since a solid payment history is required to quickly qualify for an FHA mortgage.

Full post as published by FHA Mortgage Guide on February 10, 2010 (boomark / email).