The FHA has issued important guidance concerning short sales and short refis.  These guidelines are effective immediately, and apply to all existing approvals in the pipeline as well as new loans.

Guidelines for purchases only:
Borrowers are NOT eligible for FHA-financing if they are selling their current primary residence to purchase a similar or superior property within a “reasonable commuting distance” of their current job.  In most cases, if the borrower is not changing the location of their employment, the case will be disqualified.

Generally, if the mortgage balance on the credit report exceeds the sale price, this is evidence that the borrower may have pursued a short sale agreement.  For the time being, all purchases involving a borrower selling their current residence with a short-sale agreement must be approved by management.

Guidelines for refinances only:
In order to be eligible for an FHA-insured mortgage:
(1) the subject property must have insufficient equity to complete the transaction without using a short sale agreement; AND/OR
(2 the borrower has experienced a reduction in income and does not have the capacity to repay the existing loan.

Guidelines for purchases and refinances:
In order to be eligible for an FHA-insured mortgage:
(1) the borrower must have made all payments on the mortgage in question on time for the last twelve months;
(2) the borrower must have made all payments on all other installment debt on time for the last twelve months;
(3) the borrower must not have sold a property using a short sale agreement or disposed of a property through a pre-foreclosure sale in the last three years (three years from the date of the claim if the property was FHA-insured).

If you have any questions, please contact your AE.

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