Life happens and sometimes life gives you tough situations such as a short sale. A short sale is when a homeowner experiences problems selling their home. Being short means the balance is higher than the sales price. The problem with a short sale is lenders and other creditors consider this a credit default in most cases. But it is not the end of the world. In this article we are discussing FHA short sale guidelines.
When can I buy after a short sale?
FHA Short Sale Requirements
Generally, FHA requires a 3 year waiting period after a short sale. The new FHA case file number must be over 3 years from the actual sale date of the prior short sale. In addition to the FHA waiting period, there are other credit requirements. For borrowers to meet FHA short sale guidelines, there must be re-established rent history as well as other credit. Keep in mind that it is very possible to have very good credit scores after a short sale. In order to accomplish this, there are important steps to re-establishing credit.
Exceptions to FHA Short Sale 3 Year Waiting Period
Even though most short sales require the 3 year waiting period, there are some exceptions to this rule.
No Mortgage Late Payment Exclusion
The first exception allows for FHA approval if the borrower was current when the previous sale occurred. Not only must the mortgage be current at the time of sale, but it should also be on time for the preceding 12 months. Plus installment debt payments for the same time period must also be on time. This could allow a buyer to purchase a home immediately after the short sale! The reason this rarely works is because many mortgage companies require homeowners have a late payment prior to approving a short sale.
Extenuating Circumstances Exclusion
The next potential exception is for a sale because of extenuating circumstances. These circumstances must be beyond the borrower’s control. Examples include a serious illness or death of a wage earner. But the borrower must have re-established good credit since the event. FHA specifically mentions that divorce is not extenuating. There could be an exception if the mortgage was on-time at the time of the divorce, the ex received the property, and then there was a subsequent short sale. Also not being able to sell a property because of a job transfer or relocation is not extenuating.
Are you looking for another mortgage loan type? Check out one of our other articles discussing short sale requirements for USDA, VA, Fannie Mae, Freddie Mac, and jumbo.
Above FHA short sale guidelines come from HUD 4000.1.
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