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Update to FHA short sale waiting period exception

UPDATE: Buy Again One Day Out of Short Sale?

UPDATE: Last week I passed along a recent guideline update regarding FHA’s stance on allowing the financing of a new home purchase one day after closing a short sale that meets specific criteria.

This week, after prodding and communicating with FHA about several scenarios, we have some clarity about what is allowed and what is not going to be allowed.

As with all of these programs that seem too good to be true, you have to read the fine print.

I will spare you the “fine print” part and I am going to go one step further and let you know what they “really mean”:

If you sold your home because it was upside down – you have to wait 3 years to buy again.

Here are the highlights of the above referenced HUD Mortgage Credit Analysis Handbook

So, what this is basically saying is that unless there is a death in the family or an extreme hardship like moving up or moving down for health or safety reasons – it’s going to be a fight to get approved to buy again.

Declining Market Not A Good Enough Reason

This rule was not created as a “loop hole” for folks that are stuck with more loan than they can handle right now.

This is a positive move toward being aware that there are scenarios where, in a normal market, a home owner would be basically “forced” to sell.

Examples of Acceptable Reasons

  1. Living in previously owned bachelor pad condo – got married, have kids – 1 bed 1 bath doesn’t accommodate 3+ person family.
  2. Kids move out of home – parents no longer need 4 bed 3 bath home for 2 people.
  3. Relocating because of job

This doesn’t leave a lot of wiggle room for other legitimate reasons for being “forced” to move.

Loss of job, loss of income, furloughs, laid off – or any other economy related challenges are not considered an acceptable reason for being excluded from the current published wait times before you buy again.

We will be sure to keep you updated or feel free to leave a comment below, call, text or email me with questions.

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Jose says:

    We had our home loan modified by INDYMAC on Dec/2009 and is currently on 2% for 5 years and max interest is 4.875%. In May/2010, my wife was laid off for 9 months and is now employed, however, her income is twice less what she used to make. We are leaving paycheck to paycheck each month and barely making it. Can we still re-modify our home loan again due to financial hardship? Please help!

    • Scott Schang says:

      Jose, because you have already received a loan modification I would think you have a good opportunity to ask for other options. I am unsure of what else they could do to alleviate you of your payments unless you are now able to refinance under the new HARP program. Is your current home a FHA loan or conventional? Do you know? Do you have any late payments on the home in the past 12 months? Were you ever 90 days late or more on the mortgage before or during the modification? What State are you in? And lastly, is your home upside down and how much more do you owe than what’s it’s worth? The reason for this final question is that I want to make sure we’re not trying to put a band-aid on a bullet hole here – If you owe significantly more than the home is worth, this will still loom over you for many years and may affect your decision making process in this situation.

  • Kim says:

    If you have had a bankruptcy does that show financial hardship? Can you immediatley get a mortage after short sale if you are getting a lesser mortage due to your financial situation?

    • Scott Schang says:

      Short sale, foreclosure or deed in lieu of foreclosure are all treated the same in regards to buying again. Here is an article I wrote about these timelines:


      There are exceptions that will allow you to buy again 1 day out of short sale but it is very difficult to meet this the extenuating circumstances criteria. The only circumstances I’ve been able to identify are death of a wage earning spouse resulting in financial hardship, forced relocation by an employer or permanent disability resulting in a loss of income. In addition to these circumstances, the mortgage cannot have any late payments in the past 12 months to even be considered.

      If you think you meet these criteria then you may have an opportunity to buy again before the 3 year waiting period required if you use FHA financing.

  • Jakie Perez says:

    You say alot about not qualifyig for a FHA loan after a short sale but what about Fannie Mae or Freddie Mac.. I am doing a short sale now with FHA because of a health issue. What do you think aboutmy qualifing with a large down payment.

    • Scott Schang says:

      Hi Jakie, I focus on FHA because it’s only a 3 year wait – Conventional, fannie mae loans are much more strict – Even with a large down payment, you have to wait 7 years to use a non FHA loan.

      Here is an article I wrote about waiting times: http://www.homeownershipuniversity.com/home-buyers/buy-again/how-long-do-i-have-to-wait-after-a-bankruptcy-short-sale-or-foreclosure/

    • Jakie Perez says:

      How about other lenders are they as tough? with a large down payment will they consider you.>

      • Scott Schang says:

        It’s not the lenders that are setting these guidelines, it’s Fannie Mae and FHA – The lenders have to follow their rules.

        Both FHA and Fannie Mae allow for exceptions to these rules for “extenuating circumstances”. This is a little vague and seems to be limited to death in the family resulting in loss of income or forced relocation by your employer. On top of that, they will only consider shorter wait times if there were no late payments on the mortgage during the short sale process.

        Many lenders will not even consider a short sale if you have no late payments because they assume you can afford the mortgage.

        There’s not a lot that makes sense in this market, even after 3 years of tightening and restricting underwriting guidelines. Also, what is policy today doesn’t mean that it will not change in the future.

        It’s best to set your expectations on what they are requiring now, keep your credit in good shape, save your money and be ready to buy again if something changes.

        Worse case scenario right now is you buy again in 36 months. I believe that you will see home prices very similar to what they are today, even in 3 years.

        Hope this helps.

  • Charu says:


    I wanted to know if there is legislation currently in work, which allows a person who has done a short sale to buy another home? Or can they at least be a co borrower with a spouse who was not on the original loan or deed?

    • Scott Schang says:

      Hi Charu,
      Great question – I am not familiar with any legislation that specifically addresses buying again after a short sale. Currently, most lenders treat short sales the same as a foreclosure should you try to apply for a new mortgage. Being a co-borrower is not an option for any loan programs that I am aware of. FHA will allow you to buy one day out of short sale, I’ve seen it happen. The circumstances around the short sale need to meet the specific “extenuating circumstances” criteria set by FHA. These criteria include but are not limited to: no late payment throughout entire short sale process, forced relocation by employer, death of wage earner that results in financial hardship. If the short sale was the result of market conditions, being upside down, bad loans…none of these reasons qualify.

      Currently, you are looking at 36 months to buy again using an FHA loan. The 36 months begins the day the deed of trust transfers to the new owner.

      Hope this helps? Of course, if I catch wind of any such legislation or modifications in the current guidelines, I will post it here on Homeownership University!

  • Tony Wolcott says:

    According to the above criteria I seem to be both eligible and not. I have a house with a $400,000 owing interest only loan. It will balloon in September. The bank, ING, will add two percentage points and demand $121,000 down to re-finance it. Hardly supportive unless I stop making payments and that kicks in kinder lenders. According to you if I have not missed any payments (my situation) I would qualify. I have recently had Achilles tendon surgery and require a home closer to work and easier living arrangements. Do I qualify or do I wait three years? Thanks -Tony

    • Scott Schang says:

      Hey Tony, thank you for the question…this is a tough one. It is always a challenge with these things being that every situation is different. I would think that ING would be more flexible in offering you options for your existing loan as opposed to adding another asset to their books or even force you to short sell. It does not make economical sense that they would forego a paying note (mortgage) for one at a reduced loan amount. If you have a desire to stay in the home you are currently in, I have to imagine that they will work with you if you get to the right person to talk to.

      Now, to answer your question about buying after short sale. Again, there’s not really a black and white to this, so I can only offer an educated opinion. If your relocation was ordered by a doctor (restriction on driving time which would jeopardize your employment if you do not relocate) I could see where that would be a consideration.

      What I am finding so far is that it cannot even hint towards bailing out troubled homeowners or it will be declined and you would have to wait the (currently) 36 months to be eligible for FHA financing.

      If you have doctors orders and we can collaborate that with your employer – I would say it’s worth running by FHA and see what they say. Let me know, my personal email is schang.scott@gmail.com if you would prefer to email me directly.

      • Charles says:


        I am inquiring your thoughts about my wife and I trying to obtain a new home loan,2 years after a short sale. I had to relocate to a new job in Ca from FL and had to sell, because we could not afford 2 places. At this time we have a 686 and a 696 credit score. I have talken to many lenders and they all say the same thing, needs to be 3 years. We are currently in a condition where we have rented a house from an owner/. (property management company) for over 2 years and have always paid the rent ($1,500) 10 days ahead of schedule. I just received an email from the current owner and he stated he needed to short sale the property now and begin listing the place because he can not afford it, which he has moved to another state as well for work. We really really love the place we are in and we just found out we are having our first baby and want to buy and make this place our own. I currently have $7,000 for a down payment and a combined annual income of $123,000 and need to get a loan approval in two weeks or I will miss out totally and will have to move.

        • Scott Schang says:

          Hi Charles,
          If your employer required you to move, and a short sale was the result of that…we’ve made it over one hurdle. We will need any documentation you have from your employer stating that a move is required of you.

          There are other criteria that need to be met to be able to buy in less than 36 months, but it’s easier to have a conversation about it.

          I removed your phone numbers from your question because I didn’t want to make it public, and you will hear from a home loan specialist in the morning to talk to you more about submitting this for an exception.

          We may have a shot at this, let’s dig in a little deeper. If everything works out, you should have your approval in time.