Recent Short-Sale Not Necessarily a Barrier to New Financing

FHA Guidelines

What are the guidelines for borrowers with a short sale on a previous principal residence?
When a previously owned property was sold for less than what was owed (short sale), borrowers are considered eligible for a FHA insured mortgage if, as of the loan application date, all mortgage and installment debt payments were made within the month due for the twelve months preceding the short sale.Borrowers that were in default (e.g, late on payments) at the time of the short sale (or pre-foreclosure sale) are not eligible for three years from the date of the sale.  Borrowers who sold their property under the FHA pre-foreclosure sale program are not eligible for three years from the date that FHA paid the claim associated with the pre-foreclosure sale.

Lenders may make exceptions for borrowers in default at the time of short sale if the default was due to circumstances beyond the borrower’s control (such as death of a primary wage earner, long term uninsured illness, etc.); and the credit report reflects satisfactory credit prior to the circumstances (beyond the borrower’s control) that caused the default.

No Exceptions for “Strategic Defaults”
Borrowers who pursued a short sale agreement on their principal residence to take advantage of declining market conditions and purchase a similar or superior property within a reasonable commuting distance are not eligible for a new FHA insured mortgage.
For guidelines regarding treatment of existing principal residences converted to rental properties, see Handbook 4155.1 4.E.4.g.

ML 09-52
Handbook 4155.1: 4.C.2.I

FNMA Guidelines

Deed-in-Lieu of Foreclosure and Preforeclosure Sale

These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer.  A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.

The following waiting period requirements apply:

Waiting Period Additional Requirements
Two years 80% maximum LTV ratios1
Four years 90% maximum LTV ratios1
Seven years LTV ratios per the Eligibility Matrix

 Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented, with maximum LTV ratios of the lesser of 90% or the maximum LTV ratios for the transaction per the Eligibility Matrix.



About Chris Butaud

Mortgage Originator with a CPA & a Masters in Taxation. This background has proved invaluable to my clients in the ever-changing and complex world of mortgage origination.
This entry was posted in FHA, Foreclosure / Short Sales, Uncategorized. Bookmark the permalink.

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