A new policy guide for FHA single-family home loans goes into effect on September 14, 2015. It’s called HUD 4000.1 and will have all the FHA home loan policy guidance contained within it, with some new revisions, updates, and other material borrowers and lenders should know about.
In order to help ease the transition to the new rules (where applicable) the FHA and HUD official site includes a Frequently Asked Questions (FAQ) section about the new rules.
Some of those questions are specifically for the lender, others include guidelines that affect borrowers and lenders alike. Some of the “new” material in HUD 4000.1 is a restatement or re-emphasis of existing policy, other portions may be slightly modified or changed in more substantial ways, depending.
Here’s one portion of the FAQ that directly affects borrowers–those who have a short sale on their credit history:
“What are the guidelines for borrowers with a short sale on a previous principal residence?”
“A Borrower is generally not eligible for a new FHA-insured mortgage if they relinquished a property through a short sale within three years from the date of case number assignment. The lender must document the passage of three years since the date of the short sale.”
“If the short sale occurred within three years of the case number assignment date, the mortgage must be downgraded to a Refer and manually underwritten. This three-year period begins on the date of transfer of title by short sale. If the credit report does not verify the date of the transfer of title by short sale, the lender must obtain the short sale documents.”
That alone may lead a borrower to believe that if he or she has had a short sale recently that there’s no hope of getting a new loan until the three-year required seasoning period has passed. But these rules include an exception for borrowers who were current on their mortgages at the time of the short sale:
“A Borrower is considered eligible for a new FHA-insured mortgage if, from the date of case number assignment 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.”
And there is also an exception for extenuating circumstances:
“The lender may grant an exception to the three-year requirement if the short sale was the result of documented extenuating circumstances that were beyond the control of the Borrower, such as a serious illness or death of a wage earner, and the Borrower has re-established good credit since the short sale.”
Naturally some readers want to know if their circumstances qualify under the terms mentioned above. FHA loan rules point out a few things that do not qualify:
“Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a Borrowers mortgage was current at the time of the Borrowers divorce, the ex-spouse received the property, and there was a subsequent short sale.”
“The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.”
Furthermore, the FAQ section adds, in cases where, “the short sale was the result of a circumstance beyond the Borrowers control, the mortgagee must obtain an explanation of the circumstance and document that the circumstance was beyond the Borrowers control.”
We’ll continue to examine selected portions of the FAQ section as we get closer to the launch of the new FHA loan policy book.
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