'Can I buy with an FHA loan after selling my home as a short-sale?' This is a question frequently asked by homesellers who owe more on their house than current homebuyers will pay. These home sellers must decide: 'Should I not sell my house or should I see if the bank will accept less than I owe as a loan payoff?' Of course, the third alternative is for the seller to bring money to the closing table to make up the difference.
Because of circumstances, many home sellers decide to go the short-sale route; but before they do, a common question they ask is how a short-sale effects their ability to purchase another home in the future. In almost every case, the seller must wait three years before purchasing another home with a FHA home loan (3.5% down.) However, as in most thing in life . . . FHA has exceptions.
Requirements to obtain a new FHA-insured loan in less than three years include:
- Mortgage payments on the previous mortgage were made within the month due for the 12 month period preceding the short sale, and
- Installment debt payments for the same time period were also made within the month due, and
- The short-sale payoff was accepted by the lender as 'payment in full'
These rules create a 'Catch-22'
On one hand, a borrower in default on his/her mortgage at the time of the short sale is not eligible for a new FHA-insured mortgage for three years from the date of the sale.
On the other hand, to get approved by their lender for a short-sale, nearly every borrower was at least two or three payments behind on his/her mortgage payments. Not only were they late on their mortgage payments prior to the Short Sale, many were also late on other monthly debts.
For this reason, FHA created exceptions to the 3-year waiting rule:
- The short-sale was due to a job relocation at least 50 miles away and you tried to sell your home for what you owed, but couldn't, or
- Default was due to circumstances beyond your control, such as death of a primary wage earner or long-term uninsured illness, and a review of your credit report indicates satisfactory credit prior to the circumstances beyond your control that caused the default.
I recommend before house-hunting after a short-sale, you check with your lender to see if you qualify. Lately, the Government has been shifting policies, making it necessary to always verify the current rules.