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Why you SHOULD NOT rent a home with an FHA Loan!
Posted on 19. Apr, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure
Renting a property that has an FHA Mortgage can get you rejected for a Short Sale!
The FHA Preforeclosure Sale Program has the most RED TAPE of any short sale guidelines. There are more rules that can get a seller denied for a short sale than with any other type of mortgage.
For this article, we will just be discussing the Owner-Occupancy requirements that FHA has for short sales.
To begin, let's talk about the 2 sets of guidelines that FHA has for short sales.
1. Streamlined
2. Standard
Streamlined - To qualify for this set of rules, the loan must be at least 90 days late and the FICO score for all borrower on the loan must be below 620. Under the streamlined guidelines, it is not required that the property be owner-occupied.
Standard - If the file does not qualify for streamlined review, it will be reviewed under the Standard Guidelines. These guidelines require the property to be Owner-Occupied to qualify for a short sale. FHA does allow for the servicer to approve "reasonable exceptions" for the property being non-owner-occupied "PROVIDED IT HAD NOT BEEN RENTED FOR OVER 18 MONTHS".
I have had numerous files where FHA has approved exceptions for the property not being owner-occupied. So long as FHA does not deem the reason for the property being vacated to be unreasonable, and the property was maintained, they may still allow a short sale. However, I have not seen a single approval from FHA on an exception to their 18 month rental rule. I have also had conversations with several short sale negotiators at the banks we work with commonly and with escalation representatives from HUD, and none of them had seen an exception approved to the 18 month rule either.
So if the property was rented for more than 18 months, regardless of the reason for having moved, will get the seller rejected for a short sale. The rest of their situation or reasons make no difference.
I have been called far too many times by homeowners desperate to get rid of the property but who were never informed of the possibility of a short sale, when they first moved from the property. Then it is over 18 months later and they are again trying to sell, after having rented it. Only then do I get the call and have to inform them of this rule. This is not something they were ever told before. If they had only had tried to short sell when they first moved, the chances of success would have been much higher. Unless they qualify for the Streamlined Guidelines, they cannot be approved for a short sale.
So my advice is, if you have an FHA mortgage, DO NOT RENT THE PROPERTY. If you need to short sell the property, then do so. But do not rent it because doing so for over 18 months eliminates your option of a short sale.
Have more questions on this or some other short sale topic? I'm here to help.
Sean Wilder
Loss Mit Services
860-265-3727
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Bio
Sean Wilder started in the pre-foreclosure business in 2007. Previously he enjoyed successbusiness in the transportation industry, real estate investing and as a licensed Realtor. Sean brought the same determination and work ethic that lead to great success in his previous businesses to Loss Mit Services based in East Windsor, CT. His focus, combined with his drive to succeed, have been essential to his success as one of the area's top short sale negotiators.
Known for finding creative ways to overcome hurdles and never ending persistence; Sean, believes in the power of team. Sean and his team are in the trenches everyday, plowing through challenges and objections while negotiating with various lenders, and finding solutions to difficult problems. It is this daily experience that brings Loss Mit Services consistent success and provides them the knowledge to share.
Sean belongs to a number of industry groups and associations that allow him to collaborate, share, learn, teach and stay updated on the latest changes in the pre-foreclosure industry at the federal, state, local and lender specific levels.
Effective Oct 1, 2009 all debt negotiation companies that offer loan modification, short sale, or foreclosure rescue services needed to be licensed by the CT Dept of Banking. Sean and his company Loss Mit Services were the 1st to be awarded the Debt Negotiation License NMLS # 828273 which can be verified at the CT Dept of Banking Website by Clicking Here. In addition, effective Oct 1, 2011 Debt Negotiators were required to also be licensed Mortgage Loan originators and Sean also has received this license, NMLS# LO-831853.
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