4155.1 4.C.2.l Short Sales
A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to
• take advantage of declining market conditions, and
• purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.
Borrower Current at the time of Short Sale
A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
• mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
• installment debt payments for the same time period were also made within the month due.
Borrower in Default at the time of Short Sale
A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
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So here is the long and short of it: if you have recently experienced a short sale, you will be ineligible for a conventional loan for at least 2 years; you may be eligible for FHA financing, however, you will have to prove that there were extenuating circumstances.
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