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New HUD Guidance for FHA Loans and Short Sales

Posted by Benjamin Dona on Sunday, January 3rd, 2010 at 7:50pm.

FHA Loans and Short SalesFor buyers or investors looking to purchase a short sale property using FHA financing, HUD has put in place some tough guidelines going forward into the New Year. A letter sent to FHA lenders by Commissioner David Stevens last week spelled out the agency's revised policy regarding short sales. HUD made it quite clear they are not going to tolerate individuals trying to "take advantage of declining market conditions"  on principal residences or simply "renting out their current house"  in order to buy another property that is a lower priced short sale.

Here's a summary of the latest guidance:
  • Applicants for new FHA insured mortgages will be denied new financing - effective immediately - if they participated in a short sale on their current principal residence.
  • Short sellers who are in default on their mortgage and used the short sale as an alternative to a foreclosure generally will not be eligible for a new FHA-insured home loan for three years following the close of their sale.
  • All FHA lenders have been cautioned to make certain applicants qualify under the agency's strict rules relating to rental income.
  • FHA lenders may consider rental income, minus an appropriate vacancy factor, when the applicant's loan to value ratio or LTV on the vacated property is 75% or less.
  • FHA rules also permit consideration of rental income when the borrower is relocating because of an employment change and has a one year signed lease agreement.

Basically, FHA is saying by their new guidance that they don't want to finance a new crop of rental investment houses where current owners spot a great deal in their local market that's listed as a discounted short sale and they only move to take advantage of the current market conditions.

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About the Author

Gulf Coast Associates, RealtorsBenjamin Dona is the Broker and Owner of Gulf Coast Associates, Realtors in Bonita Springs, Florida. He holds two advanced degrees, an MBA and an MA, and has an extensive background in both business and marketing. In 1998, he founded Gulf Coast Associates, and formed a group of like-minded Realtor® associates dedicated to offering professional Southwest Florida real estate services by concentrating on information, education and the use of leading edge technologies. He also is a recognized expert on the "Net," a much-quoted and read blog author, and a contributor to both national and international news outlets. Benjamin is a member of the National Association of Realtors, the Florida Association of Realtors, and numerous local real estate boards throughout Southwest Florida.

Contact Benjamin Dona at 239-948-3955


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5 Responses to "New HUD Guidance for FHA Loans and Short Sales"

Terry wrote:
We could not agree more Ashlee.

Posted on Monday, January 4th, 2010 at 10:51am.

Lisa In Logan wrote:
Great article, I heard they were doing something like this, but I didn't get the details. I need to go read up on the guidelines. I know a few people that did this last year, and I think this is a step in the right direction for us to rebuild.

Posted on Wednesday, January 6th, 2010 at 2:29pm.

Jacci - Austin wrote:
As a Realtor®, this may limit some legitimate buyers from buying a new home. In all truth though, these new guidelines will help stop others from being able to take advantage of the system.

Posted on Saturday, January 9th, 2010 at 4:21am.

Benjamin wrote:
While I agree some normal folks may fall into the trap, FHA need to do something to curb the abuse.

The amount of fraud that is being attempted in our market area is getting out of control again.

Posted on Saturday, January 9th, 2010 at 10:24am.

Antalya wrote:
I know a few people that did this last year, and I think this is a step in the right direction to correct the situation and for us to rebuild.

Posted on Sunday, January 10th, 2010 at 6:47pm.



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