Do I have to miss payments before I can qualify for a short sale?

Omigosh...how many times have we heard this? Not just in Alameda County CA, but everywhere else.

Several years ago, when agents and negotiators were still struggling through the early onslaught of short sales, this may have been one of the first things that buyers were told to do: miss payments.

This is no longer the case...and no REALTOR would or should advise their sellers to miss a payment. It’s wrong and not the best advice. The seller should consult his lawyer and/or a financial adviser instead.

First of all, qualifying for a short sale is based on the property owner’s hardship which could be one or a combination of several:

WHAT CONSTITUTES HARDSHIP?house underwater
Reasons why people apply for a short sale

  • Unemployment
  • Reduced income
  • Divorce
  • Separation
  • Medical bills
  • Too much debt
  • Death of spouse
  • Mortgage payment increases
  • Business failure
  • Job relocation
  • Illness
  • Damage to property
  • Military service
  • Incarceration
  • Decline in market value (needing to sell, but property is worth less)


And although one’s credit may be damaged after a short sale, one can take several steps to repair credit, such as paying down or paying off debt (credit card balances), paying on time and not missing any payments.

Missing mortgage payments will have other repercussions besides damaging one’s credit. In certain situations, someone who had a short sale may still qualify to buy a house again. But one of the requirements could be that one didn’t miss any mortgage payments.

See Department of Housing and Urban Development Mortgage Letter 09-52

Excerpts

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to

  • take advantage of declining market conditions, and
  • purchase at a reduced price a similar or superior property within a reasonable commuting distance.


Borrowers are considered eligible for a new FHA insured mortgage if

  • they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property and
  • the proceeds from the short sale serve as payment in full.



FINAL ANSWER
It depends on what the seller wants to accomplish in the near future ---- if seller wants to buy another house, then it behooves him to NOT to miss those payments.


Related post

SHORT SALE PRIMER for sellers --- setting the groundwork and expectations

 

 
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4 Comments on Do I have to miss payments before I can qualify for a short sale?

MAY
26
103,665 Points

Great post Pacita!! Thank you for the information!
6:34pm • #1
230,369 Points 9 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Even with the requirements you've outlined, it is still difficult to get a new FHA loan immediately after a short sale.  Regardless of the payment history on the short sale home, most buyers can qualify with a minimum credit score of around 640 and three years from a short sale or foreclosure for a new FHA loan.  For Veterans, only one year is required after a short sale or two years after bankruptcy or foreclosure to qualify for a new 100% VA loan.  It's always important to keep the mortgage payments current until the sale as it will definitely result in a much higher credit score and easier qualifying for the next loan.
10:30pm • #2
617,295 Points 60 Featured Posts Localism Sponsor Outside Blog Hit Router Attended Rain Camp Called Shot Master

Emilia --- it's really important to protect one's credit history.

Doug --- it's hard enough the first time....so we should do everything we can to  protect our credit. And if we stumble and fall, we should do everything we can to repair and rebuild. A good credit score is important in many stages of our lives, and it isn't just when buying a home. Thanks for the additional info.
10:55pm • #3
JUN
02
1,067,814 Points 69 Featured Posts Outside Blog Called Shot Master

Maybe and maybe not....and the times they are a changing for sure....we have had lenders sit on offers for 60 days because and until the sellers were late.......yicks !
4:24am • #4

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Pacita Rainmaker_large

Pacita Dimacali - ePRO, SRES, CDPE, MBA Alain Pinel in Alameda County CA

Oakland, CA

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