George brings forth a clear-cut picture of how FHA handles mortgage applications for those who have a foreclosure or a short sale on their record. Looking at the criteria things could be much worse, so as the real estate market picks up steam a little at a time there is a potential funding source at FHA.
Yesterday I posted a blog on "How Foreclosures & Short Sales Impact Purchases On Fannie Mae Mortgages". Today's blog will focus on "How Foreclosures & Short Sales Impact Purchases On FHA Mortgages".
In the past I have read a number of blogs on FHA Foreclosures and Short Sales. Several of them have painted a very rosie picture of the impact of a Short Sale on future FHA Mortgages. Some have even gone as far as making it seem like Short Sales do not have any impact on being able to do a FHA Mortgages in the future. However, MY EXPERIENCE with Borrowers who have gone through a Short Sale is much different than this rosie picture painted by these blogs.
While it is true that FHA has an option for Borrowers who have gone through a Short Sale to be able to purchase another home immediately after the Short Sale is completed IF they stayed current on their mortgage and were not late in the previous 12 months. However, MY EXPERIENCE with Borrowers who have gone through a Short Sale is much different than the rosie picture that has been painted in these blogs. MY EXPERIENCE has been that EVERY Borrower that I have done a loan for, that has previously gone through a Short Sale, has been late on their mortgage payments before the Short Sale was approved and completed. Not only were they late on their mortgage payments prior to a Short Sale, they were late on other monthly debts as well.
FHA however, is much more lenient with their waiting periods for Borrowers that have gone through a Foreclosure or Short Sale than Fannie Mae. I will address Short Sales first, because FHA Guidelines are not as clear cut on Short Sales as they are on Foreclosures.
FHA Guideline 402 (l) which I have written below is written exactly as it appears 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 a 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.
FHA Guidelines for Foreclosures in my opinion are far more to the point than the FHA Short Sale Guidelines. A Borrower that has had a previous Foreclosure is NOT eligible for a FHA Mortgage IF during the previous three years:
- They were foreclosed on their principle residence or other real property, or
- The Borrower did a deed-in-lieu of foreclosure.
The above guideline is very simple and to the point, however, FHA does have an exception. If the Foreclosure was the result of an extenuating circumstances that the Borrower can document that was beyond their control, such as an illness or death of one of the wage earners on the mortgage, and the Borrower has re-established good credit since the Foreclosure, the Lender may make an exception to the three year rule.
NOTE: FHA does not consider a divorce an extenuating circumstance. But an exception can be granted if the:
- Borrowers mortgage was current at the time of the divorce, and
- The ex-spouse was awarded the property, and
- the mortgage was later foreclosed
ALSO: FHA does not consider the inability to sell a property because of a job transfer or relocation as an extenuating circumstance.
Hopefully these two blogs "How Foreclosures & Short Sales Impact Purchases On Fannie Mae Mortgages" and "How Foreclosures & Short Sales Impact Purchases On FHA Mortgages" will help in understand the waiting periods, and impact that Foreclosures and Short Sales have on being able to obtain a new mortgage in the future.
Original Post: "FHA Time Periods For An FHA Loan After Short Sales" July 23, 2011
Other Related Blogs:
Short Sale Timelines Estabished By Fannie Mae & Freddie Mac
Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org