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FHA Time Periods For An FHA Loan After A Short Sale.

Short Sale transactions are a standard part of doing business in our current real estate market. There are down the road ramifications of having a short sale or foreclosure noted on your credit report.

Sellers should try to maintain their mortgage payments as long as they possibly can in order to guarantee them a better potential for getting a mortgage or even a rental at the conclusion of the sale.

This blog post by George Souto, a senior loan officer with McCue Mortgage here in CT outlines some of the issues one may encounter after the short sale.

I have been seeing a lot of blogs on Short Sales lately, and many of them paint a very rosie picture of Short Sales.  Some of them even make it sound like the consequences to a Sale is minimal especially with FHA loans.  I have read a few that suggest that an FHA Loan on a new property can be done right after a Short Sale without any problem.  They make it sound like this is the norm rather than the exception.

MY EXPERIENCE with doing loans on Borrowers who have gone through a Short Sale is much different than this rosie picture that has been presented in these blogs.  MY EXPERIENCE has been that EVERY Borrower that I have done a loan on, that has previously gone through a Short Sale, they had gone late on their mortgage payments before the Short Sale was approved.  Not only were they late on their mortgage payments prior to a Short Sale, they were late on other monthly debts as well.

Because of the information that is being put out there is different then what I HAVE EXPERIENCED, I felt that it was time to just to put into a blog what the FHA Guidelines have to say about the time periods in which a FHA Loan can be done after a Short Sale, and the circumstances in which it can happen.  FHA Guideline 402 (l) below is exactly as it is written in the FHA Guideline Reference Book.  Read it for yourself, and come to your own conclusion on just how easy it is to do or not to do an FHA Loan after a Short Sale.

402(I) Short Sales. A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his or 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.  Borrower Current at 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. Borrower in Default at 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 or 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. 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 a primary wage earner or long-term uninsured illness, and a review of the credit report indicates a satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.