Many potential FHA borrowers want to know how long they must wait following pre-foreclosure sales in order to successfully apply for a new mortgage. There is a specified “seasoning period” (industry jargon for the amount of required waiting time following pre-foreclosure sales) required of borrowers after a short sale, bankruptcy filing, etc.
The amount of that required waiting time will vary based on a number of factors including lender standards, so borrowers should keep in mind that the FHA loan rules we’re about to mention are only one of the sets of rules that must be followed for such transactions.
That said, HUD 4000.1 instructs the lender on how to proceed in these cases, beginning with a definition of pre-foreclosure sales:
“Pre-Foreclosure Sales, also known as Short Sales, refer to the sales of real estate that generate proceeds that are less than the amount owed on the Property and the lien holders agree to release their liens and forgive the deficiency balance on the real estate.”
FHA loan rules are quite specific in this area, stating, “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. This three-year period begins on the date of transfer of title by Short Sale.”
Naturally, there are some exceptions permitted for those who meet the FHA criteria as described below:
“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.”
The FHA also lists exceptions based on a review of the circumstances behind the pre-foreclosure sale or short sale:
“The Mortgagee 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.”
Lender standards will apply so it is best to discuss your specific needs with a loan officer to see what may be possible.