I was asked yesterday if an agent should tackle an FHA short sale or leave that type of short sale to the pros. For starters, I don't believe any seller should be held at the mercy of an agent learning how to do a short sale. The agent either has negotiated and closed a bunch of short sales or the agent hasn't.
If the agent is not a short sale expert, that agent should not learn how to become an expert at anybody's expense, much less a client's. That agent should work under supervision. As a Sacramento short sale agent, I speak from experience about that. When I started negotiating short sales in 2006, I didn't jump into the water blindfolded. But few agents can afford to be supervised or are willing to be supervised. So, here is my secret for doing an FHA short sale.
First, realize that FHA will not make it easy. FHA has 2 faces. The face of a borrower taking out an FHA mortgage and the face of a borrower in default or about to go into default. The rules are different for both. They are at odds with each other. On the one hand, the government wants to help and on the other it does not.
FHA will do its own appraisal. It will be a full blown HUD appraisal, not a BPO. Before you price that short sale, look at the comparable sales and the pending sales, because the pendings and active short contingents will be your comparable sales at closing.
FHA will not allow a 3% buyer closing cost credit. That's not to say you can't get an exception because, believe it or not, I have obtained an exception for an FHA short sale, but those are few and far between. This will, of course, eliminate almost all of your FHA buyers for that short sale. Remember the part about the two faces of FHA? FHA will guarantee a loan for a buyer to buy a home as long as it's not one of its own or one about to become its own.
You can get a 1% concession without much trouble. The key to an FHA short sale is the net to FHA. This is the secret. You don't have to meet the sales price set by FHA, but you do have to meet the net. The net is 88% of the appraisal. See, this is why you should have paid attention during math class. The best way to meet the net without messing with the sales price is to lower those closing costs. This means moving some of them to the buyer's side of the HUD. And there you have it. Straight from your Sacramento short sale agent.
Tip: If you can't figure whether the loan is an FHA loan, look at the original sales price vs. the original loan balance, and you'll find your answer if the balance is near 97-98%. Odds are 95% LTV is a conventional.
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