There seems to be a lot of confusion out there about HUD’s recent mortgagee letter 09-52 http://bit.ly/mortgagee09-52 which provides guidance for FHA borrowers after a short sale. Basically, the mortgagee letter states that a borrower will be eligible for FHA financing immediately after the completion of a short sale provided that the borrower was current on their mortgage at the time that their short sale occurred. Please read further! The mortgagee letter also states that the borrower will not be eligible if the purpose of the short sale was to “take advantage of market conditions and purchase a similar or superior property within a reasonable commuting distance”.
So…what does that mean?
Sadly, HUD will not allow us short sale our house because we are underwater and turn right around and purchase a new one in order to improve our equity position. The “reasonable commuting distance” part is the key. The spirit of this mortgagee letter is to allow the homeowner that has been RELOCATED by his/her company to another metro area to purchase a home in the new metro area after the short sale in the old metro area. Also, there is consideration for a change in family size. For example, an increase in family size that would not be manageable in the current home or empty nesters looking to downsize. Relocation to a different metro area is not required when there is a change in family size.
If you have had to short sale a property and you do not meet the guidelines above, plan on three years before you will eligible to purchase a home with FHA financing.
Please also remember that the bank that provides your FHA financing can add their own guidelines on top of the HUD guidelines. Some FHA lenders may not approve your financing after a short sale even if you meet the HUD requirements because the bank may have an overlay that is specific to that particular institution. If you are considering a short sale of your home with the intention of purchasing a new home right away, please do your homework! Get pre-approved for the new financing first and disclose everything to your loan officer. Always work with a lender that you trust or get a referral for a lender from your family or your Realtor.
Sometimes, a short sale is unavoidable. There are certainly a lot of people that have found themselves in that circumstance. Sometimes, the short sale is a financial strategy. If that’s the case, please make sure you are making the most educated decision possible. For more information on short sales, loan modifications, or your mortgage, please contact me directly and I am happy to refer you to an expert that I trust and know will give you the information you need to make the most informed decision as it pertains to your mortgage. Contact Dan Keller at: firstname.lastname@example.org or (425) 350-7136.