FHA 101

FHA 101

As anyone familiar with Short Sales will tell you, The Investor makes all the decisions.  That’s why it’s absolutely crucial to know who the Investor is, and what type of loan is being serviced.  Investor types vary widely, from Private Investors all the way to Government Investors.  Especially in this market, Government Investors are becoming more and more common, as FDMC & FNMA buy up more delinquent loans.   Because there are so many factors that come into play when determining the applicable Investor rules, I will only discuss 1 Investor:  FHA

FHA (Federal Housing Administration, is a division of the US Department of HUD (Housing & Urban Development), and has been insuring Home loans for years.  They offer some of the best mortgage terms out there, and have many programs available to suit nearly every type of Buyer.  Most FHA loans you will run into will be 30yr fixed, although the specific type does not matter when you are negotiating the Short Sale.  What you have to remember & keep in mind, is that ALL FHA loans must be serviced the same way, by law.

So, you’ve found a Homeowner needing help with a Short Sale, and they have an FHA loan.  Now what? Well, your first priority should be to have the Homeowner contact the Lender, and verbally verify/request their wish to pursue a Short Sale.  Thankfully, FHA does not require a Purchase Offer prior to beginning the Short Sale!

Once the Lender opens the file for the Short Sale, FHA mandates an appraisal be performed, to determine the property’s value.  Next, FHA (via the lender) will issue an “Approval to Participate,” which officially enters the Homeowner into the Short Sale program.  The ATP will not only give you Short Sale Pre-Approval terms (letting you know exactly what the Bank wants to NET), but will also start the 4-month program time clock.  The 4mth clock is important to understand, because the longer the property is listed with no offer, the less NET the Bank will require. Want a copy of the Appraisal?  No Problem!  FHA requires a copy of the Appraisal be sent to the Homeowner or Listing Agent, upon request!

Seems easy enough, right?  Well, there are many other FHA guidelines & stipulations that need to be met before you can close.  Some guidelines, such as the required Listing Contract Disclosure,

“Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the Broker, and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder.  The Sale completion is subject to approval by the mortgagee.”

Is not readily caught by your worker, or verified to being met until late in the game, and can cause unnecessary delay.  Make sure you already have this disclosure in place before you begin with the Bank.

Other guidelines will relate to the prospective Buyer, and still others will relate to whether the Homeowner is even eligible for the FHA Short Sale program.  Understanding the Guideline particulars will help you save VAST amounts of time. For example, If you know that FHA will only allow 1% Concession, but the Buyer absolutely has to have 5% concession, then you can save time by getting the Offer in line prior to submittal (instead of waiting for the Bank to tell you a 5% concession is too much).

Is the Bank taking too long to respond to an Offer?  Did you know FHA requires the mortgagee (bank) to Approve or Deny the Offer within 5 Business days??  If you aren’t up to date on FHA guidelines & rules, you can unknowingly burn months of time! Banks have extremely high employee turnovers, & each worker has hundreds of other files on their desk, and their motivation to understand specific rules is low.  Their job is to turn & burn.  Your job is to make sure they are doing their job, per FHA guidelines.

FHA Guidelines are public knowledge, and are available on FHA’s website (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm).  HUD Mortgagee Letter 2008-43 will be your best friend.  Learn it, know it, and you will be unstoppable!!