When it comes to a short sale there is a significant amount of confusion on how exactly each process is structured and in many cases there is an assumption that all processes are the same. The reality is that this is not true and depending on the bank and loan type, the processes can differ greatly. I have been getting a lot of questions lately about FHA short sales and how the process works, and how to qualify. Below is just a basic overview of the qualifications and guidelines and we will look at the process of the short sale in the next post. See below for all our consumers out there who need this information, but agents feel free to use this as well. Keep in mind this only applies if you have FHA backed mortgage which means you got an FHA loan. You can determine this by looking on your deed which will have your FHA case number on it, or usually your mortgage statement will say if you have an FHA loan. You can also call the number on your statement or go to the servicer’s website( for those who pay online) to obtain that information from your Servicer.
Here is a summary of the requirements to perform an FHA-insured HUD Short Sale or “Pre-Foreclosure” Sale:
1. You must be delinquent 31 days or more at the time of closing of the pre-foreclosure sale.
2. You must list the property with a Licensed Real Estate Broker who you are not related to.
For the first 30 days of marketing, the short sale lender (mortgagee) may only approve offers that will result in a minimum net sale proceeds of 88% of the “as-is” appraised Fair Market Value (FMV). During the next 30 days of marketing, the lender may only approve offers that will result in minimum net sale proceeds of 86% of the “as-is” appraised FMV. For the rest of the marketing time (60 days), the lender may only approve offers that will result in minimum net sale proceeds of 84% of the “as-is” appraised FMV.
4. The property must be owner-occupied, except for cases of job transfer, death, divorce, job loss. This means you need to be living in the property to perform a short sale under FHA guidelines.
5. There should be written proof of your decrease in income showing an inability to pay the mortgage.
6. HUD will pay up to 1% of buyer’s mortgage as part of closing costs if the new mortgage is also FHA, plus reasonable “seller” costs. I have been able to get up to 3% on FHA short sales, but you have to get a special approval from HUD.
7. HUD allows 6% Realtor commission
8. HUD will not pay for Home Warranties, points or lender’s title insurance.
9. You must get approval to participate in the HUD Pre-Foreclosure Sale Program in advance
10. Upon acceptance into the program, you will be given an Approval to Participate Form which will outline program restrictions
11. You have to have a viable financial hardship to participate in the PFS FHA program.
12. All settlement costs and commissions are paid by the bank not by the seller of the property.
These are just a few basics, and I hope this helps. We will go through the process on an FHA short sale in the next post. Please note that these apply regardless of who the bank or servicer is on the mortgage as HUD/FHA is the end investor. As always if you need more information contact me anytime.