How FHA Treats Short Sale, Foreclosure, Modified Loans, And Bankruptcy…

A few posts ago I showed you how Conventional loans treated Short Sales, Foreclosures, and Bankruptcy.

With this post I’m going to show you how FHA treats these same events.

Here is a helpful chart to illustrate…

FHA
Short Sale	3 years from date of sale. Borrowers who sold their property under the FHA pre-foreclosure sale (or short sale) program are not eligible for three years from the date that FHA paid the claim associated with the preforeclosure sale.
Deed-In-Lieu of Foreclosure, Foreclosure	3 years from completion date; or 7 years from completion date, if FHA High Balance Cash Out transaction If the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit, an exception to the three-year requirement may be considered. *The completion date or the date FHA paid a claim associated with the mortgage, if any
Previously modified loan (any principal forgiveness or conversion of any portion to unsecured subordinate financing)	An FHA loan that has been modified is eligible for the Streamline Refinance program as long as it meets the requirements for streamline refinance transactions. For all streamline refinance transactions, the new loan amount may not exceed the lesser of the: 1. Original loan amount, or 2. Outstanding principal balance (including up to 2 months interest and MIP) plus financed UFMIP. The outstanding balance of a modified loan may reflect amounts that were previously added to the loan balance to facilitate loss mitigation. This is acceptable as long as the new loan amount is calculated as required for streamline refinance transactions (may not exceed the lesser of the original loan amount or outstanding principal) & all other streamline refinance criterion is met.

Bankruptcy: Chapter 7 or 11	2 years from discharge or dismissal date with re-established credit If extenuating circumstances exist – 1 year from discharge may be acceptable if the borrower documents extenuating circumstances beyond his or her control and now exhibits a documented ability to manage financial affairs in a responsible manner. High Balance Cash Out transactions may have no history of bankruptcy in the last 7 years
Bankruptcy: Chapter 13	A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.