FHA Loans After a Short Sale: What You Should Know

March 10, 2015

Some borrowers find themselves in a situation where they need to consider bankruptcy, foreclosure, or a short sale on the home they own. Later, when financial circumstances become more favorable, these people may consider becoming homeowners again. Here’s a good example of the type of question we are often asked about getting an FHA loan in the wake of a short sale:

“If we do a short sale and are current on our mortgage at the time of the short sale, can we still get an FHA loan? “What if we had any other late payments during the year?”

FHA loan rules as published in HUD 4155.1 indicate that lender discretion is an important factor in FHA loan approval following a short sale, depending on circumstances.

In general, FHA loan rules say that a lender may permit a borrower with a short sale to apply for a new FHA loan without a waiting period IF the borrower was current on the previous mortgage loan at the time of the short sale.

However, the individual lender’s standards will apply when it comes to credit worthiness and other issues--that means each application in cases like these will be handled on a case-by-case basis. There is no set answer in these situations for how the application will be reviewed.

If a borrower has missed a payment or payments within the 12 months leading up to the new FHA home loan, that issue may affect the lender’s ability to approve the loan.

In some cases the lender may be able to approval a loan in cases like these as long as the borrower is otherwise qualified, or has significant compensating factors that may work in the applicant’s favor.

Borrowers should apply for a new FHA home loan with at least 12 months of on-time bill payment on the borrower’s record. Anything less could jeopardize the application depending on circumstances. Talk to your loan officer about your options for a new loan following a short sale.