HUD Tightens Rules on FHA Short Sale Loans
A homeowner short sales their home because the home value is less than the mortgage owed. Then, they spot a great deal on a short sale home in the same neighborhood. Now if they can get FHA financing with its low down payment, they can move in for very little cash out of pocket. Not so fast!
We reported nine days ago in our article New FHA Loan Condo Rules, that the FHA is becoming more concerned with loan quality and protecting their loans from default. With 30% of all recent mortgages being guaranteed by HUD/FHA, massive exposure is being created and they are acting to put in more stringent guidelines.
The New FHA Loan Policy
Kenneth Harney at Reality Times reported in his article earlier this week, Investor Report: HUD Guidance,
that HUD commissioner David Stevens has issued revised policies on short sale loans. He reports that Mr. Stevens said:
“Applicants for new FHA insured mortgages will be turned down – effective immediately – if they participated in a short sale of their principal residence, simply to “take advantage of declining market conditions,” or to “purchase a similar or superior property at a reduced price within a reasonable commuting distance” of the house they disposed of via a short sale.”
In simple words if you sold you home by short sale to get out of an upside down situation, FHA is probably off limits to you.
If you are renting your former home and looking to take advantage of a short sale, the FHA is limiting your rental income so that it is more difficult to qualify. I read that as your liability of the mortgage payment on the rental home will be included, but little to none of the rental income.
Only when relocating because of an employment change with a one year lease agreement will owners be allowed to claim all rental income as part of qualifying income.
Mr Harney sums it up like this:
“In its guidance, FHA says lenders “may consider” rental income, minus an appropriate vacancy factor, when the applicant’s loan to value ratio or LTV on the vacated property is 75 percent or less.
That means that the owners must have at least 25% equity in their rental property for rental income to be allowed.
On the other hand, Mr. Harney finishes the article with the following statement;
“…short sellers who are in default on their mortgage – and used the short sale as an alternative to a foreclosure by their lender – generally will not be eligible for an FHA-insured home purchase loan for three years following the close of the short sale.”
Are Any Short Sale Selers Eligible?
So what short sale seller might be eligible under new new policy.
“Stevens added that people who dispose of their houses though short sales can qualify for FHA financing on another house only if they are current in payments on the mortgage for the previous year as well as on all installment debts.”
As we saw above, you may also be eligible if you have over 25% equity in the home you are using as a rental property.
Few of my customers are using FHA loans. However, if you are eligible for FHA financing, you may be able to take advantage of low down payments and reduced closing cost. You may also be able to take advantage of the current tax credit of up to $8,000. The combination can result in you buying a home with little to no cash out of pocket. Call me to discuss your
Find out more about Daytona Beach short sales.
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