FHA Waiting Periods For Foreclosures And Short Sales

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

My first blog in this series on waiting periods on Mortgage Programs after a Foreclosure and Short Sale was "Fannie Mae Waiting Periods For Foreclosures And Short Sales".  Today I will continue the second blog in the series with FHA Waiting Periods For Foreclosures And Short Sales

As I stated in the first blog "Fannie Mae Waiting Periods For Foreclosures And Short Sales" while Foreclosures and Short Sales have substantially decreased in many parts of the County, here in Connecticut and other parts of the Northeast we continue to see more than our fair share of them.  So it is important to continue to stay up on Foreclosure and Short Sale waiting periods before a Buyer/Borrower can qualify to purchase again.  

Waiting periods are different between the four major Mortgage Loan Programs Conventional, FHA, USDA/Rural, and VA.  I covered the Conventional Loan Program waiting periods in my previous blog, this one will cover the FHA Waiting Periods, and the third and final blog will cover the USDA/Rural & VA waiting periods.  This information is important for homeowners who are presently going through a Foreclosure or Short Sale, as well as those who have gone through a Foreclosure or Short Sale and are looking to purchase again.

In the past I have read a number of blogs on FHA Foreclosures and Short Sales.  Several of them have painted a very rosie picture of the impact of a Short Sale on future FHA Mortgages.  Some have even gone as far as making it seem like Short Sales do not have any impact on a homeowner being able to do a FHA Mortgages in the future.  However, MY EXPERIENCE with Borrowers who have gone through a Short Sale is much different than this rosie picture painted in these blogs.

While it is true that FHA has an option for Borrowers who have gone through a Short Sale to be able to purchase another home immediately after the Short Sale IF they stay current on their mortgage payments during, and the previous 12 months before the Short Sale.  However, MY EXPERIENCE with Borrowers who have gone through a Short Sale has been that EVERY Borrower I have done a loan for, who has previously gone through a Short Sale, has been late on their mortgage payments before the Short Sale was approved and completed.  Not only were they late on their mortgage payments prior to a Short Sale, they were late on other monthly debts as well.

FHA however, is much more lenient with their waiting periods for Borrowers who have gone through a Foreclosure or Short Sale than Fannie Mae.  I will address Short Sales first, because FHA Guidelines on waiting periods are not as clear cut on Short Sales as they are on Foreclosures.

FHA Guideline 402 (l) which I have written below is written exactly as it appears in the FHA Guideline Reference Book.  Read it for yourself, and come to your own conclusion on just how easy it is to do, or not to do a FHA Loan after a Short Sale.

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.

FHA waiting period guidelines for Foreclosures in my opinion are far more to the point than the FHA Short Sale waiting period guidelines.  A Borrower that has had a previous Foreclosure is NOT eligible for a FHA Mortgage IF during the previous three years:

  • They were foreclosed on their principle residence or other real property, or
  • The Borrower did a deed-in-lieu of foreclosure.

The above guideline is very simple and to the point, however, FHA does have an exception.  If the Foreclosure was the result of an extenuating circumstances which the Borrower can document was beyond their control, such as an illness or death of one of the wage earners on the mortgage, and the Borrower has re-established good credit since the Foreclosure, the Lender may make an exception to the three year rule.

NOTE:  FHA does not consider a divorce an extenuating circumstance.  But an exception can be granted if the:

  • Borrowers mortgage was current at the time of the divorce, and
  • The ex-spouse was awarded the property, and
  • the mortgage was later foreclosed

ALSO:  FHA does not consider the inability to sell a property because of a job transfer or relocation as an extenuating circumstance.

Hopefully these two blogs so far "Fannie Mae Waiting Periods For Foreclosures And Short Sales"  and FHA Waiting Periods For Foreclosures And Short Sales  will help to understand these waiting periods a little better.  As well as their impact on being able to obtain a new mortgage in the future.

Even though these first two blogs have be long I believe they show that both Fannie Mae and FHA waiting period guidelines for Foreclosures and Short Sales are clear cut.  However, the waiting period guidelines for USDA/Rural and VA for Foreclosures And Short Sales are not as clear, and I will cover those in my third and final blog in this series.




 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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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Ginny Gorman 12/25/2014 09:30 PM
  2. Praful Thakkar 12/26/2014 10:00 PM
  3. Ginger Harper 12/27/2014 09:46 AM
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Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in Southern RI and beyond

So interesting George since many have thought that a divorce or job relocation did allow them to buy shortly after a short sale...especially with FHA...many thanks.

Dec 25, 2014 08:57 PM #7
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Real Estate Agents - Luxury - Divorce

We havehad about a half dozen of our short sale sellers buy homes again this year....we didn't even attempt the FHA route...or any federally backed anything...credit unions to the rescue...and they were ...and everyone lived happily ever after !

Dec 25, 2014 09:16 PM #8
Anita Clark
Coldwell Banker Access Realty ~ 478.960.8055 - Warner Robins, GA
Realtor - Homes for Sale in Warner Robins GA

George: I am seeing very few short sale clients in my market right now. Hopefully those who need this information the most will see it and get the assistance they need.

Dec 25, 2014 09:27 PM #9
Randy Kirsch
Right Trac Financial Group, Inc., NMLS# 2709 - Manchester, CT
(NMLS# 1012303) Your Dedicated Mortgage Consultant

More good information George.  Great job you are doing with all this technical information and converting it to understandable plain language.

Thanks for sharing.  Make it a great day!

Dec 25, 2014 09:56 PM #10
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George Souto always great information to keep us "in the know", thanks for sharing!  

Dec 26, 2014 12:05 AM #11
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Well George, three years is better than seven. I guess you just made a good case for FHA.

Bill Roberts

Dec 26, 2014 12:14 AM #12
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate

George, Although it may be rare, it does happen. I've closed a few short sales where the borrowers were current and/or where the first was not short but the second lien was.  The bottom line is that we just need to know about the various program guidelines.

Dec 26, 2014 04:13 AM #13
David Bacon
Realty One Group - Glendale, AZ

great information! Thank you

Dec 26, 2014 05:45 AM #14
Ranee Bray
TCP Real Estate - Cedar Park, TX
North of Austin Homes

Very useful to see the differences next to one another.  Thanks for sharing.

Dec 26, 2014 08:23 AM #15
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

George  - thanks for this most informative post.  I still find this a bit confusing.  I had a buyer who wanted to purchase a short sale.  The attorney for the seller told the seller husband to keep paying the mortgage (even though the couple was divorced). The short sale lender said the entire process has to be delayed until the seller missed a payment -- ???? So confusing.  So. everything was delayed 30 days to the seller could "miss a payment" and then the short sale could close.

Dec 26, 2014 10:17 AM #16
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, I had only had 1 short sale client that was current until the 60 day period prior to the close of the sale.  They were fortunate but the relocation was mandated and that was all they could do

Dec 26, 2014 11:09 AM #17
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Good information, George. Most home owners who had a short sale were not current and more were usually in default by the time of short sale approval. In the larger picture, 3 years is not so long to wait to buy a home again.  

Dec 26, 2014 11:58 AM #18
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Patience is a virtue here. It may take some time. I hope it all works out.

Dec 26, 2014 02:25 PM #19
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH

Thank you very much for enlightening us on a very confusing topic. Inability to sell a property because of a job transfer or relocation as an extenuating circumstance. Really?

Dec 26, 2014 08:04 PM #20
Eve Alexander
Buyers Broker of Florida - Orlando, FL
Exclusively Representing ONLY Orlando Home Buyers

Thank you for a reality check and good information.

We get calls from buyers thinking they can just get rid of the upside down house and buy bigger for less.

There is a lot of bum information out there...


Dec 26, 2014 08:12 PM #21
Dagny Eason
Dagny's Real Estate - Wilton, CT
Fairfield County CT, CDPE Homes For Sale and Condo

Good morning, George.    I had a client who did a short sale, stayed current on all payments through the closing, and bought the day before he closed his short sale    He has his new house which was needed for medical reasons, and sold his old.  

Dec 26, 2014 08:48 PM #22
Janice Soard
Friends & Neighbors Real Estate - Goshen, IN
The People you Know, Like and Trust!

I have heard there could be exceptions, but I don't know of anyone who has qualifying exceptions that got them granted.

Dec 27, 2014 01:53 AM #23
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

George - This is good information to know on FHA waiting periods for foreclosures & short sale.

Dec 27, 2014 08:22 AM #24
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George I can always count on you to provide important mortgage information. I suspect staying current on payments while doing a short sales, for most would be difficult.

Dec 27, 2014 08:05 PM #25
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

As with everything in life, the devil is in the details. You shared a point I didn't realize in that the type of short sale makes a difference when applying for an FHA loan because if it was an FHA Short Sale, then the borrower needs to wait even longer since it's from the date HUD paid the claim and not the date it closed. I imagine many don't stop to consider this important fact. Thank you for sharing.

Dec 28, 2014 05:34 AM #26
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