One of the fears that homeowner have is whether they will be able to secure a new loan to purchase a home in the future after short selling the current one. The answer is yes. In fact, the Department of Housing and Urban Development (HUD) released a letter to lenders regarding borrower eligibility for a new Federal Housing Administration (FHA) mortgage after pursuing a short sale.
According to the letter (available to download here) and effective immediately, while borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement specifically “to take advantage of declining market conditions” or “to purchase another property at a reduced price”; they 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 served as payment in full. These points are KEY!!!
Realtors, take note…if your seller needs to pursue a short sale and is still current, the sale will need to be handled differently than if they are in default. Example, If a borrower executes a short sale while in default on their mortgage they will not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale. But some lenders will make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner. But this needs to be documented and handled diligently during the transaction.
It also means that anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage for three years. Thanks to Jon Prior at HousingWire for this timely info.
- The Bank Slayer
You’re right because more people will qualify for an FHA loan over any other mortgage program.
Sorry if I sound uneducated, but isn’t “proceeds from the short sale” an oxymoron?
Also please explain: “anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage”
My understanding of HAFA is that the homeowner qualifies even if current on mortgages. What am I missing?
Thanks!!
“proceeds from the short sale” does seem like an oxymoron but there are actual “proceeds” from the sale.
The fact that the homeowner is prohibited from receiving any doesn’t change that fact that other entities do receive proceeds. For example: the mortgage company, the tax assessor, HOA, title companies, etc. The danger is when agent or buyers cut deals with homeowners to “kickback” some money.
As far as HAFA and “qualifies even if current on mortgages”. It remains to be seen.
The scariest part and in our opinion the most deceptive parts about these programs are:
1. Bottom line is the investor has the final sale and if the rate of return for the investor is to foreclose then they simply deny the approval.
2. The programs are “Guidelines” there is no apparent remedy for the homeowner is the bank doesn’t assist them or tell them why they were denied.