Short sales on mortgages backed by FHA are a little different than your average short sale. FHA has their own short sale program called the PFS (pre-foreclosure sales) program. FHA follows their own specific guidelines for who qualifies and FHA keeps some pretty strict rules for their short sellers: FOUR TIPS TO GET THROUGH YOUR SHORT SALE WITH FHA:
- DO NOT MOVE OUT UNLESS YOU HAVE AN EMPLOYMENT RELATED REASON TO DO SO: This is #1 for a reason! FHA provides help to owner occupants…not investor owners, or owners who left for ANY OTHER REASON. Even if you can no longer afford your loan, stay in the house! In the state of CT time is on your side. The only reason FHA sees as acceptable for you moving out is having to relocate for an employment reason…We can tell you many sad stories of homeowners who thought otherwise….JUST DON’T DO IT!
- THINK TWICE BEFORE RENTING OUT YOUR FHA BACKED PROPERTY: FHA has very strict rules about who qualifies into their PFS program. One reason for disqualification is renting out your FHA backed home for any period over 18 months (see #1). While this is a rather absurd rule, this will also get you denied. FHA is an owner occupant loan product and they strictly back this in their workout products.
- IF YOU HAVE A LARGE SECOND LOAN OR LIEN, BE PREPARED FOR SOME OUT OF POCKET COSTS: As most FHA loans have very small down payments, we rarely see large second mortgages associated with FHA first mortgages, however, they do happen! If you have a large second mortgage, there is a high likelihood of you coming up with funds out of pocket to settle junior liens. FHA is very strict about payments to other lien holders.
- BE PREPARED TO SHOW A FINANCIAL HARDSHIP: While most lenders are more flexible regarding reasoning FHA is very black and white. If you cannot show a monthly loss on paper – you will be denied. While we can make a case for a future in-affordability (for example: upcoming move and new housing expenses, divorce or imminent retirement, etc), we must be able to show a loss somewhere.
Did I mention FHA is strict? Getting through a short sale with FHA is predictable…but you have to follow their rules!
Last Updated on September 15, 2017 by Minna Reid