All of us in the real estate industry are acutely aware of the short sale phenomenon which has been prevalent for the past few years and is still going strong. The decline in home values have prompted many home owners to either negotiate a payoff for less than the amount they owe or even worse, to walk away altogether.

                While many home owners have fallen into this dilemma as a result of poor financial management, there is a distinct group who are forced into the short sale arena through nothing but bad luck. For instance, a home owner may be transferred out of the area and has no choice but to sell short. Other trigger events may include job loss or illness. After the dust settles and they have moved on, they may be wondering if they are destined to be renters for the next decade.

                Home financing these days falls into one of two categories: conventional and government (ie: FHA). Prior to 2008, most home loans closed were conventional due to lax underwriting guidelines. With those days behind us, FHA loans are the saving grace of the lending industry and account for a much larger share of loans originated today.

                For a potential buyer with a previous short sale, conventional loans would require the buyer to wait 4 years from the date of the short sale unless it can be proven that the short sale occurred due to circumstances beyond the buyer's control (see examples above) and the buyer had no derogatory credit prior to such circumstances. Then the wait would be 2 years.  

                So let's assume that a buyer had been transferred out of the area and had to short sell. Is he doomed to wait at least 2 years? Not if he applies for an FHA loan. In December, FHA announced its new policy regarding previous short sales. As long as a buyer was current on the mortgage and other debts at the time of the short sale, there is no waiting period to obtain a new FHA purchase loan.

                The point to remember with previous short sales is to document the reason behind it and to show the event occurred not as a result of financial mismanagement. As you can see, not all short sales are equal and through FHA financing, some buyers can reclaim homeownership faster than they may've thought!

                If you or anyone you know has faced a similar circumstance and would like more information, please contact us any time at (925) 964-1213.