Home Financing After an FHA Short Sale

One of my lenders, Jarrod Fassio with AFN mortgage company, sent me some information that gives a positive outlook to purchase a home after a successful FHA short sale.   Every situation allows for different exceptions, so not everything is black and white.  To find out more about your specific situation, please contact Kristen at 831.635.6719 for a free real estate analysis.

Buying After A Short Sale

Borrowers Current at the time of Short Sale

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 due 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.

Borrowers in Default at the time of 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.

Note: 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: Lenders may make exceptions to this rule for borrowers in default on their 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
  • review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default.

Reasons you will be DENIED financing after a short sale:

  • take advantage of declining market conditions, and
  • purchase at a reduced price a similar or superior property within a reasonable commuting distance.

References:

  • For detailed information on converting existing principal residences into rental properties, see HUD 4155.1 4.E.4.g.
  • For information on short payoffs, see HUD 4155.1 3.B.1.f.
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