Even though Foreclosures have slowed down in some parts of the country, Short Sales continue at a steady pace. So I thought it would be good to do an update blog on waiting periods after a Short Sale, before a Borrower is able to qualify for financing again. The two loan programs with the shortest waiting period for a Borrower to be able to qualify for financing again after a Sale is FHA and VA. Of the two loan programs I will start with FHA Waiting Period For FHA Mortgages After A Short Sale since there are more FHA loans out there than VA.
The guideline on the Waiting Periods To Qualify For A FHA Mortgage After A Short Sale is pretty clear and straight forward. I get calls weekly from Borrowers who have lost their home in recent years, who did a Short Sale or Foreclosure. These Borrowers are hoping to become homeowners again since their financial situation has improved.
MY EXPERIENCE doing mortgages for Borrowers who have gone through a Short Sale is that most homeowners who have gone through a Short Sale have had late payments on their mortgage prior to the Short Sale being approved. Not only do they usually have late payments on their mortgage prior to a Short Sale, most of the time they were late on other monthly debts as well.
The FHA Waiting Period For FHA Mortgages After A Short Sale is 3 years IF the homeowner had late payments prior to completing the Short Sale. On a rare occassion I run into a Borrower who has not had any late payments 12 months prior to the Short Sales approval, and in those rare cases the Borrower can qualify for an FHA Mortgage right after a Short Sale. This is rare because in most cases the Bank holding the mortgage will not agree to do a Short Sale unless the Borrower is late on the payments.
FHA Guideline which applies to Short Sales is 402 (l) which I have listed below exactly as it is written in the MRI Guideline Reference Book for FHA Mortgages.
402(I) Short Sales.
A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his or her principal residence simply to.
- take advantage of declining market conditions, and
- purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.
Borrower Current at time of Short Sale. A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all:
- mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
- installment debt payments for the same time period were also made within the month due.
Borrower in Default at time of Short Sale. A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
Note: A borrower who sold his or her property under FHA's pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.
Exception. A lender may make an exception to this rule for a borrower in default on his/her mortgage at the time of the short sale if the
- default was due to circumstances beyond the borrower's control, such as death of a primary wage earner or long-term uninsured illness, and
- a review of the credit report indicates a satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.
Hope this helps to clarify what the FHA Waiting Period For FHA Mortgages After A Short Sale.
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Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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