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FHA A Matter Of Opinion Better Back Yours Up - Buying RIGHT After Short Sale

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Real Estate Agent with West USA Realty

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Original content by Ricky Khamis NMLS 1936984

FHAFHA A Matter Of Opinion Better Back Yours Up! Here's the thing, not everyone sees the world as YOU see it.  This being true when you structure an FHA loan it is usually because they lack the 20% down, they have hiccups on their credit or some other reason causing you to need FHA Insurance.

I have been originating FHA Loans in Arizona for the better part of 12 years and have become very proficient at structuring the loans through the eyes of an underwriter.  I still struggle with some files and what MY opinion is, buying after a Short Sale is a very tough one.

Some underwriters take the moral ground, "well they just wrote off xyz amount from xzy bank that isn't right"!  My canned response is "how long have you been an underwriter?" usually they tell me 15 20 30 years even, so I then say "in reality isn't it your fault they got in over their head in the first place?"  (I don't recommend that stance for everyone by the way)

Let's talk about FACT for a second.  FHA Guidelines (4155.1 4.C.2.l Short Sales) state that a borrower MAY purchase a new home using an FHA insured mortgage IF:

  • They were current and have not been more than 30 days late on their home for the previous 12 months as well as installment debts.
  • They did not pursue a Short Sale and look to purchase another home just to take advantage of the current market conditions.

The first one is mere fact, you look at their credit report and if they have been late, they do NOT qualify PERIOD!

The second one is the tricky part, proving the fact that they are not looking to take advantage of market conditions (isn't that a state of mind?).  Isn't it a fact that if you buy a home today you ARE taking advantage of market conditions? REALLY! The rule is in force to protect the banks from people looking to JUST take advantage because they are under water.  HOWEVER isn't it up to the BANK to accept the Short Sale or not? SERIOUSLY!

This is the one I have the toughest time with, because MOST underwriters want to assume that everyone is looking to get over on the system so they look at the loan trough the eyes of a VERY STRICT "father/mother" ready to say NO just because...  This is where you have to have a very strong argument, and not JUST an argument, you have to back it up with PROOF, give them ZERO reasons to deny you.

Here's what I do, and so far I have been successful at getting them through. 

  1. Over Document, Over Document, then when you think you have documented enough document someFHA more!
  2. Prove that your borrower is not taking advantage of the market conditions by having a strong letter of explanation from the borrower.
    1. Example, borrower says that their last child has moved out and they do not need a 5 bedroom home any longer and do not need to live in XYZ school district so they want to be closer to work.  They buy a home with 3 or 4 bedrooms in a different school district.
      1. How to document: show documentation of the short sold home with tax records or something proving it was a 5 bedroom, along a map of where the home is as far as school districts. Now show that the new home is 3 to 4 bedrooms or whatever and is not in the same geographic location. Also run a Map Quest of current home to work and new home to work showing the difference broken down over the next year to show gas savings alone.
  3. I write a strong intro letter to all my files, letting underwriting know that YES this is a borrower who just short sold their home, and I outline all the reasons why it is eligible.  I put a copy of the guideline in there and reference the "Opinion" and "Fact" of the file.  I give the underwriter enough UPFRONT reason to "LIKE" my file, right out of the gate.  Try to hide it from them, and you're dead in the water.
  4. I also make sure that I have strong compensating factors like job history, low ratios, good credit reserves etc and I outline that in my letter as well.

FHA

 

Bottom line is you have to think like an underwriter and if it was YOUR check book would you write the check funding the loan, because ultimately if FHA refuses to insure the loan, then that will be exactly the case for your company.  I am very respectful of that.

 

 

To recap you CAN buy a home using FHA financing if you meet the above requirements and you are working with a lender that is well versed with FHA Guidelines.  Happy Hunting!

 

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Amerifirst Financial Disclosure-  The opinions expressed here are the personal opinions of Ricky Khamis.  Content published here is not read or approved by Amerifirst Financial before it is posted and does not necessarily represent the views and opinions of Amerifirst Financial.

 

 

 

 

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