HUD Releases New FHA Guidelines for Short Sale Borrowers
Department of Housing and Urban Development (HUD) just released FHA loan guidelines for prospective borrowers who have experienced a short sale. HUD sent a memo to all FHA lenders and underwriters explaining how to handle an FHA loan applicant with a short sale on their record. (Download the memo HERE). This is great news for hundreds of thousands of Americans who got rid of a previous home through a short sale and are interested in purchasing a home in the near future.
One of the biggest myths in the real estate world right now is that a foreclosure is just about the same as a short sale. I’ve heard appraisers, agents, even mortgage brokers echo this sentiment. Nothing could be further from the truth. There are tremendous benefits for a homeowner to do a short sale over letting a property go to foreclosure. Refer back to another I article I wrote on this topic, titled “Is a Short Sale Really Better Than a Foreclosure?”
The new guidelines are specific for FHA loans only. Here is a brief summary:
1. If the borrower remained current on payments throughout the short sale process, they are eligible for an FHA-insured mortgage.
2. If the borrower fell behind on payments during the short sale process, they are eligible for an FHA-insured mortgage after 3 years.
Obviously, this will encompass the majority of those who have experienced a short sale. Although 3 years may sound like a long time, with a foreclosure, a borrower is unable to get a mortgage for 7 years. These HUD guidelines shave 4 years off the normal time period.
There are two very important caveats to consider:
1. Reason For Short Sale: Although highly subjective, this condition is aimed at not rewarding those borrowers who either did a short sale simply to take advantage of the declining market or purchased a new home and then did a short sale on their old property.
2. Short Fall: If the borrower was held responsible for the loss from the short sale, that amount must be calculated in the Debt to Income (DTI) ratio.
In summary, these guidelines provide a glimmer of hope for so many Americans who want to purchase a new home after having gone through a short sale. If you own a property and are looking for someone to help you with a short sale, our extensive network of short sale professionals across the country (who I have personally trained) can be your complete solution. Click HERE to get your short sale taken care of once and for all.
Hi Phil, how about a Short Refinance. Can you shed some light on this topic. There seemed to be some buzz around this that Short Refinancing is being given consideration by lenders.
Falls under the general catagory of “Loan Modifications”. They do exist and are a sweet option for homeowners who want to keep their home but rarely are they approved. This was what the Obama plan was supposed to do but it has been in large part a complete failure. The reason is that the lenders have not approved many loan mods (or short refis). It all came to a head last year when a court case that made it all the way up to teh supreme court of New York found Countrywide guilty of approving short refis without the owner of the loan’s approval. Countrywide argued that the Obama plan gave them the jurisdiction to unilaterally approve loan mod requests but the owner of the loans won saying that without their expressed written consent, Countrywide could not arbitrarily agree to a loan mod.
So right now, where it is at, is that the homeowner who can actually get a short refi or loan mod approved is in great shape. But those are very rare. Plus, for someone who doesn’t want to the keep the house at all, the short sale is the only thing they can do.
I hope this answers your question.