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Some FHA borrowers have questions about applying for an FHA loan after experiencing a short sale on a previous home. The FHA loan rules found in HUD 4155.1 have the answers for borrowers applying for an FHA mortgage after a short sale.

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FHA Loan Articles

News and Updates for Homeowners

FHA Short Sale Requirements and the 'Back To Work' Program

November 5, 2013 - Some FHA borrowers have questions about applying for an FHA loan after experiencing a short sale on a previous home. The FHA loan rules found in HUD 4155.1 have the answers for borrowers applying for an FHA mortgage after a short sale.

One of the most important factors about applying for a new FHA loan after a short sale? Whether your previous loan was current or delinquent at the time of the short sale. If you were current on all mortgage payments at the time of the short sale, you may be favorably considered for an FHA mortgage loan once more, based on HUD 4155.1 Chapter Four Section C. It says:

“A borrower is 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.”
What’s crucial about the above quote is that the FHA loan requirement also addresses the borrower’s OTHER debt, not just the mortgage payment. That is a very important factor to consider.

Another important thing to remember about applying for a new FHA loan after a short sale? The recent Back To Work program implemented by the FHA--this program may also provide some added leniency if borrowers can document financial difficulties related to the recession.

HUD 45155.1 Chapter Four Section C may sound like it has the “final word” on FHA loan eligibility in cases of a short sale, but it’s not a good idea to assume you cannot get an FHA mortgage–the new Back To Work standards may be of some help for qualified borrowers.

In some cases, FHA loan applicants who were previously in home loan default at the time of their short sale may also benefit from the Back To Work program, but only if their personal circumstances qualify.

Borrowers in such cases will be required to show proof that financial issues were related to employment loss or other consequences of the recession, and take housing counseling classes as a condition of FHA loan approval under the Back To Work Program. Each application under Back To Work is handled on a case-by-case basis, so it’s best to discuss your individual circumstances with a lender to determine if this program is right for you.

For more information on these rules or the FHA Back To Work program, contact a loan officer or the FHA directly at 1-800 CALL FHA.