A couple days ago a “Mortgagee Letter” finally came out from HUD clarifying how they would look at Atlanta FHA loan applications where a previous short sale was involved.
If the short sale was simply to take advantage of market conditions and get out of a house that was underwater, in order to purchase a similar or superior property at a reduced price, then the borrower is NOT eligible for an FHA insured loan. My understanding of the definition of that rule is that if the new property is within the same commuting distance as the previous property, then that is considered ineligible for FHA.
Therefore, the argument could be made that if there was a short sale, and then a transfer to the Atlanta market, then a new FHA loan could be made.
Yet that, only if the borrower was current on the mortgage for the previous 12 months prior to the short sale. If the borrower was in default at the time of the short sale, then HUD is viewing that the same as a foreclosure, and the borrower will need to wait 3 years from the date of the sale to qualify for FHA financing.
In summary, then, a short sale is fine to qualify for a new FHA loan so long as the borrower was current on the mortgage and all other installment debt for the previous 12 months, AND, they either relocate to another city or downsize in house.
Any other combination, and it looks like HUD will want any metro Atlanta buyers to wait 3 years to re-qualify for a new FHA loan.
Related posts:
