The Federal Housing Administration (FHA) – which is part of HUD – insures FHA loans, reducing the lender’s risk. With FHA loans, as with conventional and VA loans, the short sale process involves a lender agreeing to accept less than the payoff balance on the loan. However, HUD has defined clear guidelines under which FHA short sales may occur.

Overview of HUD Short Sale Guidelines

• To be eligible for an FHA short sale, you must typically be delinquent on payments by at least 31 days, must occupy the property, and must provide documentation showing a verifiable increase in expenses or reduction in income.
• You must be approved to participate in the pre-foreclosure sales program before your lender can consider an offer.  The lender will review your hardship package (all of the documents showing the increase in expenses and/or reduction in income) and order an appraisal to determine the market value on your home. 
• Once you’re approved, HUD will allow the short sale to proceed with reasonable costs of sale included in the transaction, such as broker commissions and customary closing costs.
• HUD also allows buyers to ask for up to 1% of their loan amount in closing costs if they are purchasing the home with an FHA loan.  Buyers who wish to use conventional or VA loans may not request any closing costs.  (Should you reach the point of negotiating an offer with a buyer, be sure to clarify whether they plan to use FHA financing, and remind them that HUD defines the only allowable closing costs and they are not negotiable.)
• HUD does not allow repair allowances or reimbursements, home warranties, loan fees or discount points for non-FHA loans, or lender’s title insurance.
• You can receive a seller’s incentive of up to $1,000 if the sale closes within 3 months from the date of application, or $750 after that. This amount can be used to cover disallowed expenses requested by the buyer (such as a home warranty) or other expenses, as needed.
• For a short sale offer to be approved, it must conform to all of these requirements, and there must be enough money after all of the closing costs and brokers fees for the lender to receive a minimum percentage of market value (either 88%, 86%, or 84% of market value, depending on the number of days the home is on the market).

Review the complete set of guidelines here: HUD Pre-Foreclosure Sales Program

To find out whether a short sale is right for you, call us at (512) 522-4990 today.

1. Are you currently living in your home?
2. What was the purchase price of your home when you bought it?
3. Did you use a conventional, FHA, or VA loan?
4. How long ago did you purchase it?
5. Whose names are on the mortgage note?
6. Whose names are on the title to the property?
7. How much do you still owe?
8. Who is your mortgage company/lender?
9. How many mortgage liens are there on the property?
10. Do you have any past-due property taxes or HOA dues?
11. Have you taken out any home equity loans?
12. Are there any other  liens on the property that you’re aware of, such as income tax liens?
13. When was the last mortgage payment you made?
14. Could you resume your monthly payments if the bank would waive or negotiate a payment plan for the past-due amount?
15. Do you currently have or have you applied for a loan modification/work-out plan or other alternatives with your bank?
16. What communications have you received from your lender(s)? What did they say, and when did you receive them?
17. What is the condition of your home?
18. What has changed in your financial situation since you purchased the home?

There are other questions that may arise during an initial consultation, but these will generally provide enough information to get started.

To learn more, call Sara Abbas at (512) 522-4990 today, and find out if a short sale is right for you.

• Some Homes Advertised as Short Sales Aren’t – There are many inexperienced agents listing homes as potential short sales that have no chance of closing.  It’s important to have your buyer’s agent qualify the other agent to make sure they’ve done their research and prepared a listing that has a good chance of closing rather than going into foreclosure.
• Sellers Typically Won’t Make Repairs – Sellers are typically in a position to short sell their home specifically because of a financial hardship.  They normally do not have money to make repairs, and lenders won’t usually do so unless damage to the home is so great that it would prevent the home from selling otherwise.  Such conditions might include roof or structural damage.  In most cases, however, you must be willing to purchase a short sale home “as is.”
• Lenders Must Net a Certain Amount – Many buyers hold the mistaken belief that lenders will accept offers far below market value just to sell a home.  True, you may get a good deal on short sales, but lenders must still net a certain amount after paying all costs, or it wouldn’t make financial sense for them to agree to the sale.  Depending on whether the loan was FHA, VA, or conventional, which lender holds the loan, and whether there are additional liens on the property, you may only find a lender willing to accept a few percent below market value.  
• Purchasing a short sale is a waiting game - You will submit an offer on a short sale just as you would a traditional sale, but it may take weeks or even months for the bank to respond, and then even more time before they agree to approve the sale and close.  While you may close sooner or later, it’s normal for the process to take three to five months. 

Have questions about short sales? Contact Sara Abbas at (512) 522-4990 today.