Short selling will get you out of the poor house — a home you paid too much for. It will get rid of the high house payment that leaves you house poor and broke every month. But when can you buy again? The following Fair Housing Administration (FHA) guidelines will give you encouragement and understanding that you can buy immediately after a short sale. But you must meet the FHA mortgage guidelines. It is always advisable to consult an experienced local loan officer for additional information and confirmation on how to qualify for an FHA mortgage.
The following information was released in a letter to lenders regarding borrower eligibility for a new FHA mortgage after the completion of a short sale.
Actual language from the new FHA guidelines: “Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to take advantage of declining marketing conditions, and purchase, at a reduced price, a similar or superior property with a reasonable commuting distance.
Exception: “Borrowers are considered eligible for a new FHA-insured mortgage if they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.”
Translation: If the homeowner did not miss any payments prior to the completion of the short sale and their overall credit history will allow, they can buy immediately following the completion of the short sale using FHA financing. The focus seems to be on rewarding homeowners who made their payments on time during the short sale, and has not damaged their credit so they can qualify for another home loan immediately.
Bottom line: Missed payment = no FHA financing for three years.
Q: So I can buy immediately after a short sale if I did not miss any payment ?
A: Yes. FHA allows you to qualify for a new home loan immediately. So, you have not been ruled out of the FHA loan. You cannot miss any payment on your credit card, student loan, home loan, etc. Consult an experienced local loan officer to qualify for an FHA loan based on your: income, debt ratio, current credit and employment history to meet all FHA-mortgage qualifications.
Q: How much loan can I qualify for after a short sale?
A: This loan qualification process is similar to getting your previous home loan. You will need to provide two years of income tax returns, two most recent bank statements, two most recent months of pay stubs or profit and loss statements for the self-employed. Your loan officer will run your credit and advise you accordingly. You will need to work closely with your loan officer to update your financial information on a regular basis.
Q: Will I qualify for a new home loan if I was in default or late on my home loan or credit cards during the short sale ?
A: Borrowers in default at the time of short sale are not eligible for a new FHA-insured mortgage for three years. Consult your local loan officers to see if there are exceptions to this rule.
Q: What percentage of homeowners can qualify to buy immediately after a short sale?
A: A very small percentage of homeowners who are still employed and who have not missed any house payment qualify for a loan modification. Bottom line: In order to qualify for a home loan, you need to be employed with good credit and financial assets.
I hope the information provided some clarification for homeowners who are looking forward to buying immediately after a short sale. The key is not to miss any payments: house payment, credit card payment, anything. Always contact an experienced local loan officer to get more clarification on how to qualify for an FHA mortgage.
Annie Christian is a local real estate broker who specializes in helping homeowners understand the complicated issue of short sale. She can be reached at 351-5117 or visit her website at www.AnnieChristian.com.