Having survived a short sale, one in which you sold your home for less than you owed on the mortgage, puts you in a riskier category for a new mortgage where conventional lenders are concerned. Turning to a government-insured Federal Housing Administration loan means less stringent qualifying demands, lower down payments and competitive interest rates. It's an alternative many short sale survivors are exploring. For some, an application for an FHA loan can be submitted within weeks of closing on your short sale as long as no default judgment has been recorded against you.
Wait three years after a short sale if you were delinquent in your mortgage payments before applying with an FHA-approved lender or broker for a new mortgage. Apply immediately after a short sale if you stayed current on your mortgage for the previous 12 months. Work to get your FICO credit score above 580 before applying. Know that mortgages for buyers with credit scores under 620 need manual underwriting from lenders, a process that takes more time than ordinary underwriting and can involve closer credit scrutiny.
Track your debt-to-income level. Keep the ratio below 43 percent of total household income to qualify for an FHA loan and to avoid having the loan manually underwritten by the lender, as opposed to being desktop qualified by a computer. Pay down your credit card debt to 25 percent of the amount of credit available. Pay all your bills on time. Get rid of all unnecessary expenses and start saving.
Shop for a property that costs no more than 2.5 times your total household income. Expect to pay a minimum of 3.5 percent of the sales price, or appraised value, as a down payment if your credit score is above 650, with higher down payments expected of those who have lower credit scores. Don’t buy a house that’s beyond the FHA loan limit for your area. Check with your lender to determine those limits.
Show job and income stability by staying employed for more than one year, and providing the pay stubs, income tax returns and bank statements verifying your status.
- Be prepared to pay mortgage insurance on an FHA loan, with the terms changed as of this publication date to require mortgage insurance for the life of the loan and an increase of 10 percent in the mortgage insurance premium.
- FHA lenders consider extenuating circumstances that led to delinquency in mortgage and debt payments when determining eligibility.
- U.S. Department of Housing and Urban Development: FHA Takes Additional Steps to Bolster Capital Reserves
- Bankrate.com: 7 Things to Know About an FHA Loan
- Forbes.com: Money Wise Women; Getting a Mortgage After Short Sale or Foreclosure
- The Mortgage Reports: FHA May Waive Its 3-Year Foreclosure Waiting Period
- Silicon Valley MercuryNews.com: Do You Qualify? Getting an FHA Loan After a Foreclosure
- Andrew Robb: Buying After Foreclosure or Short Sale
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