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Effective October 1, 2013 U.S. Department of Housing and Urban Development (HUD) has announced the following changes to their Federal Housing Administration (FHA) Short Sale requirements:

• Eligibility Requirements: To successfully complete a short sale under the FHA short sale program, the borrowers must meet the following requirements:
  • They cannot list the property with or sell it to anyone with whom they are related or have a close personal or business relationship.  In legal terms, it must be an "arm's-length" transaction.  Any knowing violation of the arm's-length requirement may be a violation of federal law.
  • Your mortgage must be in default, on the date the short sale transaction closes.
  • Before closing, any additional liens against the property must be released. A lien holder who demands a payment to release its lien must submit a written statement, and an agreement to release the lien if that amount is paid.
• Financial Hardship Validation Requirement: For a standard preforeclosure short sale sale, servicers must use a Deficit Income Test (DIT) to determine a homeowner's financial hardship.  The IRS Collection Financial Standards will be used to verify homeowners expenses not reflected in their credit report.  Only owner-occupied properties are eligible for the standard preforeclosure sale.
• New Streamlined Short Sale Option: Homeowners eligible for a streamlined short sale may not be required to submit financial information or have a financial hardship.  Principal residences, second homes, investment properties and service members who have received Permanent Change of Station (PCS) Orders are potentially eligible.
• Property Appraisal: The appraisal of your property should be completed within approximately ten business days.  After the appraisal, the short sale file will be updated and prepared for review.  In some cases, approval may be required by the investor and/or FHA, which may take more time.
• Cash Contribution: As a new condition, you might be required to make a final payment (sometimes called a cash contribution) before or at closing.  This payment will reduce the deficiency balance.
• Borrower's Incentive Compensation: If you are an owner occupant, acting in good faith, and successfully selling your property, you may be eligible for an incentive of up to $3,000.  If you are required to make cash contribution, you are not eligible for this incentive.
• Short Sale Contract Addendum:
  • The revised FHA short sale addendum must be signed and dated by all parties.  Under this addendum, all parties agree that the subject property must be sold through an arm's-length transaction.  An arm's-length transaction is defined as a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment.  Also, no hidden terms or special understandings can exist between any of the parties (e.g., buyer, seller, appraiser, sales agent, closing agent, and mortgagee) involved in the transaction.
• Action Required: Review the Short Sale FHA Program guides located on the Agent Resource Center:
  • FHA Preforeclosure Sale FAQs
  • Tips to Efficient FHA Preforeclosure Sales

To review additional information about FHA requirements, please log on to www.hud.gov. Questions can be directed to Short Sale Customer/Agent care at 1.866.880.1232.

Exciting News! FHA Is Allowing People that Suffered through Recent Economic Hardships to Apply for a Home Loan with the FHA Back to Work Program.

In the not so distant past people had to wait 3 years or more after suffering through a financial hardship. Bankruptcy, foreclosures and other major financial disasters would sideline people for a number of years before they could buy a house again. However, all that has changed with the FHA Back to Work Program.

Previous Guidelines

For years the FHA program has helped people finance the purchase of a home with a modest 3.25% down payment. In general, the FHA rules for credit and employment history were more forgiving than conventional loan guidelines. However, there were strict rules about waiting a significant length of time after filing bankruptcy, losing a home to foreclosure, getting a loan modification or a deed-in-lieu.

New Guidelines

The Back to Work program waives waiting periods based on certain hardship situations. People that have suffered through the following types of problems are no longer forced to wait multiple years to apply for an FHA loan

* Bankruptcy (either Chapter 7 or Chapter 13)

* Short sale of previous home

* Foreclosure

* Modification of previous mortgage

* Sale of a home due to pre-foreclosure status

* Deed-in-lieu

Due to the recession of the past few years the government has given FHA the ability to relax their rules in order to help people qualify for home loans. Now people will only have to wait 12 months.

Meeting the New Qualifications

For borrowers that have faced a hardship like the ones described above they will need to meet a few qualifications.

First the borrower will need to prove that their current financial condition is recovered from the impact of the financial hardship.

Second, the borrower will need to provide proof that their income declined by a minimum of 20% for 6 months or longer. This can usually be shown by presenting federal tax returns and the supporting W-2 forms.

Finally the borrower will have to agree to complete a counseling session aimed at educating home buyers.

In addition to these items the borrower must re-establish their credit. This does not mean that the scores must be 700+. However, once the hardship has ended the borrower will need to have good payment history on all credit accounts in order to prove that they are able and willing to make their monthly obligations.

Types of Borrowers

The Back to Work program can be used for people buying their first home as well as people buying their second, third, fourth, etc. home. It can also be used with the FHA 203(k) program for people that wish to renovate or modernize a home. Even people that are currently in a Chapter 13 plan could be approved for the FHA back to work program. The court will have to grant permission for the loan and the borrower will have to meet the other requirements.

The recent recession has hit a lot of people and left a lasting impact on them. The Back to Work program is aimed to help these people put the past behind them and return to the stability of owning a home.

Additional Mortgage Information: Mortgage Home Loans Financing

Differences Between FHA and Conventional Mortgages

Across the land the vast majority of home buyers use either a FHA or a conventional mortgage to purchase a property. While these loans are similar in a few ways, there are some pronounced differences. Each one has benefits that cater to a particular group of buyers. Understanding how they are different and which one is best suited to different circumstances will help buyers feel more informed about their financial situation.

FHA Loan

FHA stands for Federal Housing Authority. This agency does not make the loan itself. Instead, they insure FHA loans that are offered by approved mortgage lenders. The lender is protected in the event the borrower does not repay the loan.

FHA is committed to providing basic, conservative loans. A large number of their deals are fixed rate loans even though FHA does allow for adjustable rate mortgages.

Conventional loan

A loan that is not insured by FHA is most likely a conventional mortgage. Mortgage brokers, banks, and credit unions offer a wide variety of conventional loans. Conventional loans have more unique offerings such as interest only type of deal or a combination of a first and second mortgage used for a purchase.

Down Payments

One of the major differences among the two types of loans is the requirement for a down payment. FHA will allow buyers to pay 3.5% of the home's price as a down payment. The money used for the down payment may come from cash on hand, savings, retirement accounts or even a gift from a relative.

For conventional loans, the normal down payment is 20% of the home's value. However, there are quite a few loans that will allow a 10% or 5% down payment. The money used for the down payment must come from the borrowers own funds such as savings, investments or retirement accounts.

Private Mortgage Insurance

Both the FHA loan and conventional loan requires private mortgage insurance (PMI) if the buyer makes a down payment that is less than 20% of the purchase price. This insurance is designed to protect the lender if the loan is not repaid in full.

With a conventional loan, the PMI will be in place until the loan balance is paid down to 80% of the home's value. Typically, the PMI amounts for a conventional loan are higher than a FHA loan.

For an FHA loan, there is a fee charged at the time of the loan closing as well as a monthly amount paid with the loan payments. The monthly amount is enforced until the loan amount reaches 78% of the home's value.

Credit Score Requirements

Conventional loans have usually been reserved for customers with the highest credit scores. Due to the problems faced by the mortgage industry over the past several years, this fact is even more true today. Conventional loans rely heavily on standard credit reports offered by the major credit bureaus. Most conventional mortgages are approved by a computer system and reviewed by underwriters.

On the other hand, FHA loans will allow a slightly lower credit score. In addition, FHA will allow underwriters to go beyond the computer system and make approvals based on a borrower's complete file. Items like residence history, rental history and stable job history can persuade some FHA lenders to approve a loan for people who have scores that are slightly less than perfect.

Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

Basics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

• Confirm no existence of drainage or water damage
• Ensure water pressure is adequate for the home without any leaks
• Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
• Identify exterior access for each bedroom
• Insure the minimum 18” egress and ingress from the lot line to the building
• Test the heater to ensure proper working condition as well as air conditioner
• Ensure electrical outlets are in every room and in working order
• Test the fan/hood over the oven for proper working condition
• Ensure screens are present on roof vents and no more than three layers of roof material
• Determine that the electric box has at least 60 amp
• Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
• Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

FHA has specific rules when it comes to purchasing a home that is in Pre-Foreclosure with a FHA mortgage on it.  FHA doesn’t make mortgage loans, they Insure them – and so as the Insuring Agency (kinda’ like a PMI company) they get to set the rules!  In those Pre-Foreclosure, Short Sale transactions, they set out what fees CAN be included from the Seller, and which fees can not.

 Pre Foreclosure Seller Fees per FHA

The process for purchasing a FHA Short Sale is similar to other short sale situations in that the HUD-1 must have prior approval.

The item people need to realize, though, is that if the buyer is obtaining a FHA mortgage,  the Seller can only pay up to 1% of the Buyer’s First Mortgage Amount.

We don’t have that many of these cases in the Raleigh, Holly Springs, Cary, Apex area – but when we do, the buyer needs to remember that they will probably need a little more cash upfront for the purchase.

If you are considering a mortgage loan in North Carolina, and you want more details on FHA  Mortgage Loan Guidelines – please call Steve and Eleanor Thorne, 919-649-5058 Raleigh FHA Mortgage Loan Specialists!  We have over 20 years of experience providing homebuyers with the BEST mortgage rates available!

If you own an FHA or HUD insured home and you are desiring to request a short sale of your home, there are specific requirements that must be met.  I have worked with a number of homeowner's in selling their FHA insured home and before listing their home for sale, we discuss the guidelines that I know FHA is going to require be met by my homeowner Sellers.  

I am going to provide some of the FHA and/or HUD insured guidelines for a short sale over the course of several posts and try to give examples of facts that might fit the requirements.  The first that I want to discuss is the requirement that the home must be owner-occupied with exceptions in certain cases for job transfer, death and divorce for example.

I recently sold a home for a homeowner that had a FHA insured loan.  He had previously vacated the home and had moved out of State.  At the time we requested to be approved for a short sale, the Seller provided evidence that his reason for vacating the property and therefore, the home being vacant, was due to the need to have to move out of State in order to be able to obtain another job in his field of employment.  We documented this through not only with his current income statements, but through a letter explaining the history and reason for his move.  We were able to obtain an exception to the requirement of the home being owner occupied. 

Each situation will be specific to the individual homeowner.  But, overall, it is important to be aware that one of the requirements for a FHA and/or HUD insured short sale, is that your home be owner occupied. 

If you don't know what to do if  you are falling behind on your mortgage payments or you are currently facing foreclosure of your Kansas City home, Kansas or Missouri, please continue to read the upcoming posts and Request a Free Confidential, no obligation, analysis of your home and options that may be available to you to help reduce the burden you may have.

(There are potential tax consequences that should be discussed with a tax professional.  Please do not interpret this information as providing legal, tax or other professional advice which you should seek independently.)

(Image courtesy jscreationz/FreeDigitalPhotos.net)
 

About the Author:

Suzanne Hinton
Hinton Group-Affiliated with ReMax Premier Realty
Voted 5 Star Best in Customer Satisfaction Real Estate Agent
Phone: 816-520-0917
Email: shinton@remax.net
shortsellingyourkansascityhome

©2011 Suzanne Hinton-Hinton Homes-Kansas City Short Sale Realtor
Kansas City Short Sales