October 23, 2018
A lot of the advice you read about home loans in general, and FHA mortgages in particular, is aimed at the first-time home buyer. But what happens after that first-time buyer becomes a home owner, eventually sells the property, and wants to purchase another home with an FHA loan?
Buying another home after selling your old one will seem very familiar in many ways, but when you purchase again after selling (or choose to sell and purchase at the same time) you will need some extra supporting documentation.
Your FHA lender is requires to verify your income and debts the same way as with the original mortgage.
But having purchased a home, and paid it off via the sale of the property (or even simply paying off the old mortgage over time) will leave a record of the transaction and subsequent payment history on your credit report.
The lender may see the most recent activity on the mortgage if the credit report is current enough; either way the lender will require proof that the mortgage is either paid in full or some documentation showing the current disposition of the loan.
That means that in cases where the home has been sold or paid off, the lender will need copies of the documents that show the home is no longer a financial liability for the loan applicant.
Proof of sale, title transfer, payoff notices, etc. will be needed to prove the old home is no longer an asset or contributing to the borrower’s debt ratio.
It may also be helpful to provide contact information (where applicable) for any homeowner’s association you may have belonged to while you owned the home; this can assist the lender in determining that no payments to that association are due as they were when the original owner lived on the property.
It helps to remember that the lender has no way of knowing if you, as the original home owner, have actually sold the property, stopped paying the insurance and property taxes, etc.
The loan officer will need to verify this above and beyond what is listed in the credit report with supporting documents.
Another factor to consider, especially for those selling a home and buying a new one at the same time, is that credit reports often take a bit of time to update; the details of your most recent transactions may not show up on your report until later on. The lender will need information to close your FHA home loan before that.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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