How to Buy Short Sale Homes on FHA
A "short sale" occurs when a homeowner sells his home for less than he owes on the mortgage. Typically, these homeowners are struggling to afford payments, and rather than initiate foreclosure proceedings the lender agrees to allow the homeowner to sell for less than the outstanding balance. FHA mortgages are one way buyers can finance these properties. Although the FHA, or Federal Housing Administration doesn't offer mortgages itself, it does offer mortgage insurance to lenders.
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Instructions
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Find a short-sale property. Consult a buyer's broker to help you search for potential short sales. Although some short-sale properties are advertised as such, a broker will have access to the most up-to-date information, including unadvertised sales or properties that are about to come on to the market as short sales.
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Research the FHA mortgage limits in the county of the short sale. There is a maximum mortgage amount the FHA will insure, and it varies between counties based on median home price. Find these limits on the FHA website at www.fha.gov.
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Find an FHA-approved lender. Begin by visiting the FHA website. Your real estate agent, lawyer and even the Yellow Pages are other sources of information about FHA lenders in your area.
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Arrange an appraisal and inspection. FHA loans are not approved if the property appraises for less than the asking price, though that is unlikely to be a problem with a short sale. Inspections may be more problematic. The FHA won't insure loans on properties that require significant repair work such as new plumbing, roof repairs, or appliance replacement. Since short-sale sellers may have stopped investing in the home, there is a higher risk these properties may not meet FHA requirements.
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Apply for your loan. Since there is no standard FHA application, different approved lenders will have different application processes. Lenders can also have different approval guidelines, and FHA minimum guidelines change periodically. Find the current minimum guidelines on the FHA website. As of 2010, expect to need a down payment of at least 3 percent, and for your total monthly expenditures, including the monthly payment for the mortgage, to be less than 45 percent of your income.
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Tips & Warnings
The seller's lender may want a copy of your property inspection and appraisal to ensure the seller is giving them the maximum price they can get for the property. This may need to happen before your sale can be completed.
FHA loans are often easier to qualify for than traditional mortgages since they are insured by the government.
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