FHA loan and short sale rule

FHA loan and short sale rule


Rules for FHA loans following a short sale

Home buyers may qualify for FHA loan despite a short sale after one year.

Borrowers with a prior bankruptcy, foreclosure, deed-in-lieu, or short sale may be eligible for an FHA insured loan if the bankruptcy, foreclosure, deed-in-lieu, short sale was the result of a documented extenuating circumstance.

New FHA loan requirements borrowers may also be eligible for an FHA insured loan on a purchase transaction after 12 months from the completion, discharge, trustee's sale if the borrower meets the requirements for extenuating circumstances Economic Event.

FHA loan and short sale rule

FHA guidelines lets you qualify for a loan after three years from a short sale. FHA guidelines requires a minimum three year past from the date of sale of the property. You will need to document when the lender sold the property after they took possession of the property.

FHA guidelines for short sale allows borrowers with a minimum credit score of 500 qualify for a FHA loan. After a short sale, above 580 credit score and three years past the sale date FHA allows only 3.5% down payment.

Credit score

New FHA announced a policy change to address risk and strengthen finances. FHA has changed the minimum credit score for new borrowers:

  • Buying a house after a Short Sale
  • FHA requirements new borrowers will now be required to have a minimum credit score of 580 to qualify for 3.5% down payment
  • FHA loan requirements new borrowers with less than a 580 credit score will be required to put down at least 10%
  • HUD homes for sale in Florida

Short sale

After the credit crisis of 2008 qualifying for a mortgage became a lot harder. If not for FHA many borrowers would not qualify for a mortgage. What makes FHA different than a conventional loan is the FHA will approve you and give a better interest rate with a lower down payment even if you have a low credit score.

When you compare FHA vs. conventional loans FHA loans win the down payment and credit score race hands down. FHA loans only requires a minimum down payment of 3.5 percent of the purchase price with a 580 credit score versus a conventional loan requiring between 5 to 20 percent down payment with a minimum 620 credit score.

The average credit score for an FHA loan is 680 well above FHA’s minimum credit score of 580 for 3.5% down payments, according to HUD.


FHA loan and short sale rule

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FHA Short Sale Guidelines

FHA guidelines requires three year past from the date of sale of the property


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FHA Credit Score

Requires a minimum credit score of 500 to buy a home or refinance

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Collection accounts

A collection is minor in nature usually does not need to be paid off as a condition for loan approval

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Bankruptcy

Chapter 7 Bankruptcy at least two years must have elapsed since the discharge date

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Foreclosure

Foreclosure must have been resolved for at least 3 years 

  • Government loan: Seasoning is determined by the date the claim was paid
  • Loans other than Government: Seasoning is determined by the date of sale the lender sold the property

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Short Sale

FHA guidelines requires three year past from the date of sale of the property

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