Bouncing Back from an FHA Short Sale

photodune-290718-short-sale-real-estate-sign-isolated-right-xsSometimes in your financial life no matter how hard you try, things just end up going South. Unfortunately when this happens, homeowners frequently find themselves facing foreclosure. Of course, this is terrifying for multiple reasons. The home will be lost, meaning you’ll have to find another place to live, and the finances will suffer even more because that foreclosure will stay on the record for quite some time. It may seem like you’re staring down a dark tunnel with no light at the end. But there are other options instead of foreclosure. A lot of families turn to FHA short sales to help loosen the financial grip.

What is an FHA short sale?

To put it briefly, a short sale is a property that is sold for less than the amount that the homeowner owed. For example, if the homeowner has a $200,000 mortgage, the home may be sold for $190,000, oftentimes less; the amount will be determined by all parties involved. It’s not an ideal situation for the homeowner or the lender, but it’s better than a foreclosure because it frees up the debt from the homeowner and the lender doesn’t lose all of the money from the investment.

It’s important to remember that a short sale is one of the lost resort options, second only to a foreclosure. Before you can apply for a short sale you have to prove that you will not be able to qualify for one of the FHA home retention programs available to struggling homeowners. You also need to show that you cannot get a loan modification to make the home mortgage easier for you to handle.

In addition to this, you need to prove that you are dealing with a financial hardship that will be on-going long enough to be considered permanent. This could include anything from a job loss to a major death. You just need to show that you can’t afford the mortgage payment and you won’t be able to for a while. You must also occupy the property you are attempting to short sale on, and you have to have only one loan that is FHA insured.

Most lenders don’t want to short sale on a home, so you have to provide a compelling case before a short sale will be granted. However, as much as they don’t want the short sale, most of them would rather retain some of the original investment, which is why the FHA short sale is an option.

 Requirements for Your Bounce Back

Once a short sale has been permanently marked on your record, you need to begin the process of recovery. If you were in default on the loan at the time the short sale took place, you will not be able to qualify for a new home loan for three years from the time the claim was paid by the FHA. This gives you three years to get your finances into a place where you can once again handle the challenges that come with a home mortgage. To do this you’re going to want to get a couple of lines of credit and then pay those payments regularly and on time. The requirements  also state that you need to stick with the same employer for at least two years, and your pay has to be stable or increase during this time. If it drops, this could be a problem for you. Also, do what you can to pay down your debt or to consolidate what you’re dealing with so it’s easier to handle. Anything you can do during this time to improve your finances will be a benefit later on when you attempt to get another loan.

Now, there are some cases where you can qualify for a new loan before the three years has expired. Oftentimes when a short sale was performed but you weren’t in default on the payments, you will still be eligible for an FHA insured mortgage. These situations are best discussed with the lender and/or loan officer so they can determine whether or not this is even an option for you.

While an FHA short sale isn’t the best thing to have staining your financial record, it’s also not the worst. It shows that yes, you got into a situation that became more than you can handle, often because of things beyond your control, but it also shows that you attempted to take some control of the situation, rather than waiting for the foreclosure to kick you out of the residence. So you have three years from the date that sale is completed. Use this time to set a goal for a new home purchase and take the steps to get there. Three years is plenty of time to get you back on top of your finances.

With FHA Short Sale being one of your oppurtunities to choose from, here are some other opputunities for FHA insured mortgage.

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