April 8, 2013
Home owners who need to ask about FHA loans after a short sale send us a good many of our most frequently asked questions. What do FHA loan rules say about borrowers trying to apply for a new FHA mortgage after a short sale transaction?
According to HUD 4155.1 Chapter Four, “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.”
But that does NOT mean borrowers cannot apply for an FHA loan after a short sale–if you do not fit into the description above, and were current on the mortgage loan at the time of your short sale, read what the FHA loan rulebook has to say about people in your circumstances:
“A borrower is 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 borrower was in default on the FHA home loan at the time of the short sale? “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.” The FHA official site adds a note to this statement, saying:
“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.” There is also an exception listed.
“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.”
It’s never safe to just assume you cannot get an FHA home loan after a foreclosure, short sale, or other actions–check with a loan officer or the FHA to see what your options could be. You may be surprised to learn you DO have options if you were current at the time of the short sale or meet the other criteria mentioned above.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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