Refinance or Purchase After Short-Sale? Yes You CanMay 18th, 2010
Fannie Mae recently joined the FHA (Federal Housing Administration) in issuing underwriting guidelines for prospective homebuyers with prior short-sales. You may bow be eligible for a “short-refinance” or new purchase mortgage, in spite of a short-sale in your past. Both Fannie Mae and FHA are adapting their guidelines to the current mortgage and housing market, in which many potential mortgage applicants have undergone some form of mortgage distress leading to a short-sale transaction.
By shortening the eligibility time frames since undergoing a short-sale–or, in the case of the FHA “short-refinance,” helping you avoid a short-sale entirely–you may once again be eligible for a mortgage loan. Use a free mortgage calculator to see if you can realistically afford a mortgage now, then learn whether you may be eligible below.
FHA guidelines now allow “short-refinance” transactions. A short-refinance is when a homeowner refinances their existing mortgage for less than the full balance owed, similar to a short-sale–but you keep your home. To be eligible, your current lender must agree to the reduced principle pay-off, all your mortgage payments must be current for the prior year and through the close of the transaction, and you must meet all the other qualification criteria for a FHA refinance mortgage. The mortgage amount of the new FHA loan will depend upon the appraised value.
FHA also outlines eligibility criteria for borrowers who have recently sold a property in a short-sale transaction but who now wish to purchase a new home. FHA will not approve a new mortgage after short-sale if you pursued a short-sale transaction on your previous home simply to take advantage of declining market prices on a ‘moving up’ home that is similar or superior to your old home and “within a reasonable commuting distance.” If you have had a short-sale and are looking to purchase within the same general area, there must be extenuating circumstances that have led to the short-sale (i.e., divorce or other one-time, extenuating circumstance).
If you are now purchasing in another area because of job change, or in the same area but seeking a smaller home due to job loss or illness (on the part of you or a co-signer), FHA may permit the new transaction despite the short-sale transaction. If yours is such a scenario, it is highly recommended that you apply for pre-approval from an FHA-approved lender before making any purchase offers.
If you have had a short-sale, in which your mortgage was paid off with less than the full amount owed when your previous home sold (what Fannie Mae terms a “preforeclosure sale or deed-in-lieu of foreclosure”), you may be eligible for a new Fannie Mae purchase mortgage. The required time-frames since your prior short-sale must have been at least:
Under Fannie Mae guidelines, otherwise good credit is critical to your eligibility if you have had a short-sale transaction in your past. Fannie Mae guidelines demand that there be no late payments on the prior mortgage before the short-sale, nor any other negatives such as late credit card payments between the time of the short-sale and the new purchase transaction.
If you have had a short-sale transaction in your past and feel ready and qualified to become a homeowner once again, use a mortgage prequalification calculator to determine your ability to pay for a new mortgage. Then double check the FHA guidelines and Fannie Mae guidelines for prior short-sales. Finally, contact a qualified mortgage professional to assist you with your new home purchase, to take advantage of today’s low mortgage rates.