Friday, December 18, 2009

New FHA Short Sale Rules

FHA loans are used extensively by buyers who have sold their previous house in a short sale (sold it for less than what they owed the lender). FHA has just made some changes to the rules. Some buyers will have more difficulty getting an FHA loan, but many buyers will have an easier time getting an FHA loan. Here are the new rules:

• If the borrower has made all their mortgage payments on time for the previous 12 months before the short sale, and they have not had any late payments on any installment debts (car loans, furniture loans, etc.) in the previous 12 months, they are eligible for an FHA loan. However, if they sold their primary residence in a short sale just to take advantage of declining market conditions, and are trying to purchase a new house that is a similar or superior property within a reasonable commuting distance, they are not eligible for an FHA loan.
• If the borrowers are in default at the time of the short sale, then they are not eligible for an FHA loan for three years from the date of the short sale.

In other words, if the borrowers are not trying to game the system, they can get an FHA loan. If they are trying to game the system, they cannot get an FHA loan.

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