Many people who are behind on their mortgages and trying to sell their homes wonder about the requirements to receive government approval for what is known as a “short sale.” A short sale is when your home is sold for less than the amount needed to pay 100% of your mortgage note.
Most mortgage notes in the US are owned by Fannie Mae or Freddie Mac, which are federally chartered corporations created to purchase mortgages from banks and other lenders. The Federal Housing Administration (FHA) is the agency within the US Department of Housing and Urban Development (HUD) that guarantees mortgage notes purchased by Fannie Mae or Freddie Mac.
Since HUD guarantees FHA loans, it has to pay a claim to the note owner in case of losses.
HUD must approve or reject proposed short sales involving federally insured mortgages since they have secured the mortgage note. The law says they have to approve short sale requests unless the request does not meet the legal requirements.
Eligibility Requirements for the HUD Short Sale Program
- The property must be occupied by the owner of the property; the home cannot be vacant (with some exceptions) or an investment property
- At the time the short sale closes, not at the time of application, the owner must be at least 31 days behind on the mortgage.
- The owner must show that there has been a reduction in income or an increase in living expenses
- The property must be appraised by the lender using an FHA-approved appraiser; fair market value “as is” is the initial listing price
- The purchase price must be at least 88% of the fair market value of the property; mortgage lenders have to participate in the program
- Homeowners can only have one FHA-guaranteed loan at the time of application
- Homeowner must be an individual, not a business entity
Approval requests can be submitted early in the process, even before the property is listed for sale. Or the application can be made after the agent has found a buyer for the property. Normal real estate brokerage commissions may be paid under the program. You’ll want to do everything you can to quickly find a buyer for your home and make sure your real estate agent has an aggressive internet marketing plan specifically for your home.