Short Sale Guidelines Established

Within the last month or two, the guidelines have been established for both FHA and Conventional Loans, regarding how soon and under what terms an individual can purchase another property if their previous residence was a sold as a Short Sale.  These guidelines are going to be important information for your Buyers who have sold their previous residence as a Short Sale or for your Sellers who have a property listed that will be a Short Sale and plan to purchase another property.  Below are are the guidelines:  

Purchasing using a Conventional Loan 
– Must wait at least 2 years to purchase another property and must put at least 20% Down
– After 4 years, can purchase with 10% Down
– After 7 years, the guidelines will go back to the regular LTV’s (Loan-to-Value), which is a 5% Down Payment
– If extenuating circumstances are provided, then after 2 years, home could be purchased with 10% Down 

In summary, your Buyers are going to need to wait at least 2 years (regardless of circumstances) and put more money down than what is typically required. 

Purchasing using an FHA Loan 
– Buyers must wait at least 3 years to purchase another property (unless they meet one of the two exceptions below)
– Exception #1: If Buyer is purchasing in “a different geographic area”, they are able to purchase right away
– Exception #2: If Buyer was on time with their payments at the time of the short sale, and they are downsizing, they may purchase in the same geographic area right away
– For both scenarios above, 3.5% is the minimum Down Payment 

The definition of “a different geographic area” will be up to Underwriter discretion, but for a general rule of thumb, the property will need to be at least 50 miles away, with possible exceptions below that.

Courtesy of Danny Forbes  |  Loan Officer  |  Sterling Savings Bank