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Will the new guidelines for FHA short sales help you or hurt you?

With an increase in FHA loans being written, everyone should expect an increase in the number of FHA pre-foreclosure sales on the market.

However, there are some changes in the guidelines of pre-foreclosure sale program also known as FHA short sale.

These guidelines for the most part a significant improvement for anyone needing to do a short sale on their FHA loan.

The following make it selling your property on an FHA short sale in Ohio significantly easier:

1) The calculation that required the appraisal of the property for at least 63% of the amount that was loaned on the property. This is important because a lot of the properties that are in the market have dropped below 37% of the mortgage balance.

2) HUD previously would pay nothing for buyer closing costs on an FHA short sale, however, with the new and improved guidelines, they will now pay 1% of the buyer’s closing costs if the buyer will be is using FHA financing for the purchase. This is a nice move although not enough. I have had several offers fall through because a buyer needed 3 to 5 percent of their costs paid and the short selling lender because of the FHA guidelines would not budge even though the would have received all of the money they needed to satisfy their minimum net payoff requirements.

3) They have increased the amount allowable for discharge junior linens up to $2500. This is a significant improvement because in the past they limited junior liens to $1,000 which made it much harder to get a large junior lien to accept an offer. HUD will still allow the seller to walk away with up to $1000 check at closing if there aren’t any special or extra costs needed to be paid in order to get the necessary minimum net to the lender.

One change that makes a HUD/ FHA short sale a bit more difficult than it was is the new minimum net to the short selling lender guideline. Previously HUD allowed it’s lenders to accept as little as 82 percent of the appraised price as the net pay off on the loan. HUD increased that percentage to 88%, if the house sells in 30 days. However that percentage will slowly decrease depending on how long a house stays on the market. If a house sells within 60 days it drops down to 86% and if it sells after 60-days it will go further down to 84% of the appraised value. Apparently no matter how long it stays on the market they won’t accept a lower net amount.

With the higher minimum net pay offs it is even more important that when selling your home, that has a FHA loan it as a short sale, that you use an experienced real estate agent or broker to work on your behalf. You don’t want someone who just took a two day seminar but has never done one. An experienced short sale specialist will be able to help ensure that your home gets valued by your lenders appraiser at a reasonable market value and thus be able to be sold and still meet these new higher minimum pay off requirements. Traditionally an unrealistic lender appraisal or valuation is the number one reason why short sales are turned down.

One reason to always participate in the Pre Foreclosure Sale program with your FHA loan as opposed to just walking away from your home and letting it foreclose is this. The latest instructions from HUD to FHA lenders specify that if a borrower attempts to do a pre-foreclosure sale and meets all the requirements but still fails to successfully sell his or her home before it forecloses., any resulting deficiencies are not be collected against the homeowner. This is a huge benefit to homeowners.
Andy Morris is an Ohio real estate broker with an expertise in selling homes on a short sale.  If your Ohio home is heading towards foreclosure or you owe more than your property is worth, please call Andy at 888-4-STOP-IT  to see if you qualify for a short sale with your lender.

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