For 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.
Gulf Coast Associates, Realtors
Bonita Springs, Florida