April 18th, 2016 | Bankruptcy, Foreclosure, Short Sales
Borrowers who have experienced financial trouble and wind up selling their property in a short sale arrangement often recover from their difficulties and feel ready to become homeowners once more. When you are ready to fill out an FHA loan application in the wake of a short sale, what do the FHA loan rules say about having such a transaction on your record?
FHA loan rules for new loans following a short sale may seem complex--the rules that apply to you often depend on the status of your mortgage loan prior to the short sale.
FHA has a list of short sale rules and regulations in Chapter Four of HUD 4155.1. Section C of Chapter Four may or may not apply to your particular circumstances, but the rules are good to know:
"A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to take advantage of declining market conditions, and purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value."
The rules that apply to borrowers who were current on their mortgages at the time of the short sale say you are "considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and installment debt payments for the same time period were also made within the month due."
What about situations where the short sale occurred when the borrower was delinquent on the home loan?
"A borrower in default on his/her mortgage at the time of the short sale (or pre- foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale."
Additionally, "A borrower who sold his/her property under FHA's pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale. Exception: A lender may make an exception to this rule for a borrower in default on his/her 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 or long-term uninsured illness, and a review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower's control that caused the default."
If you need help with your specific circumstances, talk to a loan officer or contact the FHA for more information.