Do you have a FHA mortgage on your home? If you are a Realtor, do you know of anyone with a FHA mortgage that may be thinking about ashort sale? Recent breaking news with HUD/FHA is helping FHA homeowners facing foreclosure sell their homes. From what I’ve gathered from local real estate agents, FHA short sales are the easiest to process. The reason FHA short sales are so easy is because there is a systematic process defined by HUD (Department of Housing and Urban Development) that absolutely has to be followed when performing a short sale. Here are a few things you need to know that give you the edge regarding FHA short sales.
First, FHA requires at least one of the owners to be occupying the home at the time of the short sale. This requirement can be waived however due to a severe hardship that causes the seller to vacate. In addition, the seller must be 31 days delinquent on the loan.
Second, the seller MUST be approved into the pre-foreclosure program before the lender can consider any offers. This approval is evidenced when the seller receives the HUD form 90045 from the loss mitigation department at their lending institution. This form is titled “Acceptance Into the Pre-Foreclosure Sale Program.” This form will reveal the property’s appraised value.
This is where is gets good: The minimum NET PROCEEDS (not the purchase price) to the FHA first mortgage is based on “As-Is” Appraised Value AND Length of Time From the Date of Approval. For Example:
Less than 30 days = 88% 30-60 days = 86% 60+ days = 84%
So, the net proceeds that the lender needs to receive at closing MUST be no less than the percentages listed above the appraised value, which is referenced in the HUD form 90045. This means that you must ensure that everything in the transaction that will be paid (Realtor fees, closing costs, liens, judgements, seller incentives, prorated taxes, etc.) has to be accounted for before reaching the 84-88% threshold. The lenders will not take a penny less!
Once accepted into the pre-foreclosure sale program, HUD gives the seller 90 days to sell their home under the terms of the agreement. The lender is required to postpone all foreclosure proceedings 90 days past the date of approval in the meantime.
The GOOD NEWS. FHA will provide a seller incentive of no more than $1,500 to the seller if they come under contract and close within the 90-day period. This is reduced to $750 if the property closes outside of the 90-day period. Another GREAT perk, FHA will allow up to $2500 toward the payoff of a second mortgage or other junior liens affecting the property. However, the seller will then be required to forfeit the $1000 incentive to the 2nd lender/junior lien holder. The incentive is applied first before applying the remaining $1500.
Lastly, the lender will NOT allow any seller paid closing costs if the financing is conventional. If the buyer’s financing is FHA, then 1% seller paid closing costs are allowed. The buyer cannot “bid up” the purchase price to account for seller concessions on a FHA short sale.
I recommend downloading FHA form 90045 to get more information on this program. In the meantime, as your Seattle FHA lender, I will try to keep you one step ahead as is pertains to HUD/FHA guideline changes.
Your Mortgage Guy,