Question: My clients visited a national builder who insisted that their lender can immediately approve mortgages to previous homeowners after a short sale with lates. Can they really lend on a home after a short sale?
Answer: Beam me up! Wouldn’t it be awesome if everyone who had a short sale could turn around and purchase another home? But that would stimulate our housing market therefore it must be sci-fi.
After calling the national builder to inquire about their mortgage programs, and as suspected, we all drink from the same pond.
For instance one of the most popular loans today is offered by the Federal Housing Administration. FHA Mortgagee Letter 09-52, is very specific on their guidelines. (I know, it shocked me too… a government mandate that is clear and concise).
FHA Short Sale Highlights:
- The borrower must have been current on their mortgage at the time of the short sale and for the 12 months prior. But the lenders that do not require lates before a short sale are as rare as the haboob we experienced in July.
- Writing like Shakespeare is a requirement because a letter of explanation to document the ‘great’ reason for the short sale is a must. “I dumped my house so I could buy the identical floor plan with a pool for $200,000 less across the street,” is not acceptable.
- Borrowers who were late on their mortgage at the time of the short sale are not eligible until three years from the date of the sale.
Extenuating circumstances could shorten the term. Examples: relocation for employment with the same employer (moving from Mesa to Goodyear is not acceptable), or a drastic change in family dynamics such as a death or severe illness. Divorcing your cheating spouse probably will not count unless you have pictures.
Fannie Mae is the main guru for conventional loans. Guidelines for borrowers with short sales are outlined in announcement SEL 2010-5. But we are finding it doesn’t matter what the guidelines state, it appears every bank proposes their own overlay or guideline, tougher than Fannie (or FHA) originally proposed.
It is recommended before re-entering the housing market that a lender blesses the file with a written approval. Be prepared: The last file we closed with a recent short sale was almost two feet high in paperwork.
Keep in mind, a strong credit rating will help your chances. And as with all things in our slippery lending landscape, all guidelines are subject to change. Let’s pray for the better.
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