May 22, 2015
A reader asks, “My bankruptcy was discharged in August of 2012. We did not reaffirm the mortgage either. One year later I short sales the house (August of 2013 it was sold). The short sale is not on my credit report nor are any missed payments. I was in the process of a mortgage modification when I filed bankruptcy. The firm that I used (which was later investigated by the FTC for mortgage fraud) promised they could take 100,000 off my loan (apparently some things are too good to be true). This under the advice of multiple lawyers I filed bankruptcy.”
“I worked w a previous lender who put me threw du (or bu- the underwriting test used by fha). I passed that but he later took the approval back because he said the fact that I had a short sale (which he was aware of- again not on my credit report). I’m confused on whether or not Im eligible? Im three years post bankruptcy, but I keep hearing conflicting things. Our credit scores are good and we have money for a down payment.”
FHA loan rules state that in the case of a short sale, borrowers are, “considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
–mortgage payments on the prior 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.”
For borrowers who were not current on the mortgage loan at the time of the short sale, FHA loan rules are clear:
“A borrower in default on his/her mortgage at the time of the short sale (or pre- foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.”
The FHA does make some exceptions here: “A borrower who sold his/her property under FHA’s pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale. Exception: A lender may make an exception to this rule for a borrower in default on his/her mortgage at the time of the short sale if the default was due to circumstances beyond the borrower’s control”.
All that being said, FHA loan rules aren’t the only ones you have to be concerned with in such cases. The lender’s standards also apply. For this reader question it’s entirely possible that the borrower could meet all FHA loan standards mentioned above to the letter, but lender standards still require a waiting period.
It’s best to shop around for a lender who can work with your circumstances in situations like these–one lender may be willing where another is not. Trying another lender is the best advice we can give here.
Do you have a question about FHA home loans? Ask us in the comments section. All comments are held for moderation.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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