5 Things to Know about how FHA has Responded to Short Sales

The CA Mortgage Guy would like to inform you of an update from FHA regarding how it is responding to short sales and short pay offs has been published.

• Short sale – a previously owned property was sold for less than what was owed.
• Short pay off – there was a principal write down of indebtedness that cannot be refinanced into a new mortgage.

Here is an overview of the Top 5 things you should know about these changes:

1. These changes are effective immediately.
2. Borrowers are NOT eligible for new FHA financing if they pursued a short sale on his or her principal residence simply to take advantage of the declining market in their area in order to acquire a similar or better property near their current residence within a reasonable commuting distance.
3. Borrowers ARE eligible for new FHA financing if they had 0×30 (no 30 day lates) on their mortgage and other installment debts in the past 12 months AND the proceeds from the short sale served as payment in full.
4. Borrowers whose mortgage was in default OR pre-foreclosure status at the time of the short sale are NOT eligible for FHA financing for 3 years from the date of the pre-foreclosure sale, unless they qualify for an exception.  Lenders MAY approve an exception based upon A) The default was due to circumstances beyond the borrower’s control, such as a death of primary wage earner, long-term un-insured illness etc. AND B) The review of the credit report indicates satisfactory credit history prior to the circumstances beyond the borrower’s control which caused the default.
5. On an FHA refinance, borrowers ARE eligible if the current lender chooses to write down the mortgage due to declining market values AND/OR a reduction in income.

Stay tuned for more FHA and conventional loan updates from the CA Mortgage Guy!