A Complete Guide to Understand FHA Short Sale

“A homeowner may be eligible for an FHA short sale if the hardship of seller is determined by the HUD. The government has its involvement in short sale so almost all the FHA short sale falls under the Housing and Urban Development guidelines. A short sale may be tricky and confusing to understand for agent and sellers.  Below given tips may be helpful to understand the FHA short sale.”

Guidelines for an FHA Short Sale

If the short sale is on the short track to nowhere, then there are chances that it is stuck in the FHA waterfall. FHA may want to look for loan modification possibilities. Your FHA short sale process will be much faster if your loan modification was rejected.

The home is identified as 1 to 4 units. This means a duplex or fourplex can qualify for an FHA short sale, but a 5-unit apartment building cannot. Vacant houses are not allowed to be renting out more than eighteen months.  A variance must be obtained to proceed the FHA short sale if the home was given on rent out more that eighteen months. Obtaining the variance is a time taking and lengthy process.

The house must not be purchased as an investment or as rental otherwise it will not qualify for FHA short sale. Seller must be facing the hardship to qualify for a short sale. Sellers that want to walk away from home or want to opt for strategic short sale will not qualify.

The seller must be at least thirty days delayed on mortgage payments. HUD is very much careful about saying to stop making mortgage payments. If the sellers are not delinquent he will not be able to meet the criteria.

Important Questions about an FHA Short Sale:

Here are some important questions about FHA short sale that may be helpful to understand the process.

How much time is required to do an FHA Short Sale?

The estimated time required for short sale may be between four to six months, but depending upon the situation it may take more time. According to the circumstances HUD may provide another two months extension. It is sure if the government is involved there will be some delay in the process. If the Bank of America is involved the HUD will issue an approval to participate after taking a long time and stressful process to determine the seller’s hardship and property qualify for the FHA Short Sale. After that the seller will be given duration of four months to sell the home. While other banks approve the FHA short sale based on the purchase contract.

How to determine the Value for an FHA Short Sale?

HUD will go through a proper appraisal process to get the market value. It will not be allowing the inclusion of a short sale and foreclosure prices until they are the only option to determine the value. Sometimes final approved sale price may be unreasonable due to the elimination of competing sales, which is a flaw in the pricing process.

Is it possible for seller to receive cash for an FHA Short Sale?

Yes, if the compensation is not supposed to be used as the contribution to the second loan. The incentive amount starts out at a $1,000 and if the sale is not closed within 90 days, it drops to $750. The seller will be required to contribute a part of full incentive to the second loan if the second lender requires more than $15, 00 to settle the deal. If the second lender requires more than $1,500 to settle the short sale, the seller will be required to contribute a part or all of the incentive to the second lender.

Will FHA allow a seller credit toward the buyer’s closing costs?

Yes, FHA will allow 3% credit when FHA is insuring the buyer’s financing, FHA will not allow more than a 1% credit in an FHA Short Sale. It is true that some FHA buyers require cost credit for paying the closing cost. FHA expects to net 88% of its approved sales price. If the net proceeds exceed the FHA minimum, it is possible that FHA might approve a higher seller contribution to the buyer’s closing costs.

What is the Drawback of FHA Short Sale?

The main drawback of FHA short sale is the time required for the process of a short sale. It will make much easier if the seller applies for a loan modification and the application is rejected, followed by an application to get preapproved for an FHA short sale. First hire a short sale agent if accepted into the FHA preforeclosure program and go on the market at the preapproved price.