FHA short sales
All FHA mortgages are insured by HUD. HUD has their own short sale process known as the FHA PFS (Pre-Foreclosure Sale) program.
The FHA PFS Program was originally introduced to help homeowners in default with FHA mortgages avoid foreclosure and free them of their mortgage obligation, when a sale of the property would not produce adequate proceeds to pay off the loan.
As there are no proceeds to the sellers in a short sale, all closing costs including commissions are paid out of proceeds, making this a no cost solution for most homeowners.
FHA provides full debt forgiveness for those who qualify into the PFS program and participate in good faith whether or not they successfully sell their home.
There are two types of FHA PFS programs. One for owner occupants and another for those who no longer live in the home:
Owner occupant homeowners must:
- Document a financial hardship associated with keeping the home
- Be evaluated for other workout options such as loan modification
Non-owner occupants can only qualify for the FHA streamline program, which requires they:
- Are at lest 90 days+ in default
- Have a credit score below 620
Once a homeowner is approved into the program, their lender will order an appraisal of the home, and then issue an ATP (Approval To Participate) in the PFS program.
The ATP is valid for 120 days, during which a sale meeting the terms of the letter will be approved. During this time any foreclosure activity will be postponed so that the owner can proceed to sell the property.
Once a sale meeting the terms is approved, an approval letter naming the buyer will be produced and the sale can close as any other, with qualifying owner occupants even receiving $3,000 relocation assistance at closing.
TOP 4 TIPS TO GET THROUGH YOUR SHORT SALE WITH FHA:
DO NOT MOVE OUT UNLESS YOU HAVE AN EMPLOYMENT RELATED REASON TO DO SO:
This is #1 for a reason! FHA provides help to owner occupants…not investor owners, or owners who left for ANY OTHER REASON. Even if you can no longer afford your loan, stay in the house! The only reason FHA sees as acceptable for you moving out is having to relocate for employment.
THINK TWICE BEFORE RENTING OUT YOUR FHA BACKED PROPERTY:
FHA has very strict rules about who qualifies into their PFS program. One reason for disqualification is renting out your FHA backed home for any period over 18 months (see #1).While FHA offers a non occupant solution, it has other unpleasant qualification criteria.
IF YOU HAVE A LARGE SECOND LOAN OR LIENS, BE PREPARED FOR SOME OUT OF POCKET COSTS:
As most FHA loans have very small down payments, we rarely see large second mortgages associated with FHA first mortgages, however, they do happen! If you have a large second mortgage, there is a high likelihood of you coming up with funds out of pocket to settle junior liens. FHA is very strict about payments to other lien holders.
BE PREPARED TO SHOW A FINANCIAL HARDSHIP:
While most lenders are more flexible regarding reasoning, FHA is very black and white. If you cannot show a monthly loss on paper – you will be denied. While we can make a case for a future in-affordability (for example: upcoming move and new housing expenses, divorce or imminent retirement, etc), we must be able to show a loss somewhere.
Did I mention FHA is strict? Getting through a short sale with FHA is predictable…but you have to follow their rules!
NEED HELP WITH YOUR FHA SHORT SALE?
We've been helping owners short sell since 2008, and we can help you!
I was about to give up and just turn my back on my home and walk away. However, I found Minna and she was a lifesaver! Other realtors tried to help me but made the situation worse and wasted my time. If you are in the unfortunate place of having to short sale your home, then you know it can be embarrassing and difficult, especially if you don't have real estate experience. Minna knew exactly what to do, and was very professional, knowledgeable, and, kind. Minna was on my side and handled all the challenges we faced with selling a house that at times seemed like it didn't want to be sold! I appreciate Minna and know that you will love her.
Last Updated on May 12, 2022 by Minna Reid