FHA issued an update today which basically said three things:
- If you do a short sale just to buy another property at a lower price, FHA doesn’t want anything to do with you.
- If you do a short sale and were current on your debts, you’d be “fine.” I’m assuming that this would be the type of situation where someone has to relocate due to taking a new job and short sales their existing house and wants to buy another home? But let me ask you this question, do you know any lender who has ever agreed to a short sale where the seller hasn’t been behind on their payments? So isn’t this sort of impossible?
- If a default happens with the short sale, then FHA says that they wouldn’t be eligible for at least three years.
Keep in mind the operative word is eligible, not approved for it. The three years assumes that you’d be able to reestablish good credit almost immediately.
According to the letter (available to download here) and effective immediately, borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement “to take advantage of declining market conditions” or to purchase another property at a reduced price.
Borrowers are cleared for a new FHA-insured mortgage if they were current on their previous mortgage and other debts at the time of the short sale and if the proceeds from the short sale serve as payment in full.
If a borrower executes a short sale while in default on their mortgage would not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Some lenders can make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner.