FHA released underwriting guidance regarding handling transactions in which the borrower has experienced a short sale or will require a short payoff in order to refinance their existing mortgage. The guidelines reflect current market conditions due to the deterioration in property values in most areas of the country. An overview of the guidelines for short sales and short payoffs follow:
When are borrowers eligible for a new FHA mortgage if they have experienced a short sale?
- The short sale was for their primary residence, and
- The mortgage payments on the prior mortgage were 0 X 30 days late preceding the short sale, and
- All installment debts were 0 X 30 days late preceding the short sale.
When are borrowers not eligible for a new FHA mortgage if they have experienced a short sale?
- The short sale property was not their primary residence, or
- The borrower took advantage of the declining market conditions to purchase a reduced price similar or superior property within a reasonable commuting distance, or
- The short sale was a pre-foreclosure sale. (Borrowers may be eligible for FHA financing three years after the pre-foreclosure, unless the borrower can document extenuating circumstances and satisfactory credit prior to the circumstances beyond the borrower's control.)