Question Details

Novella Henry,  in Ellicott City, MD

Can a buyer using a fha loan buy a short sale?

Asked by Novella Henry, Ellicott City, MD Sun Jun 29, 2008

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You can. Keep in mind, though, that lender required repairs (if any) may play a part in the deal, and could be at your expense. One example, I had a buyer in 2009 who purchased a home in short sale. The seller agreed to their FHA loan. The lender required that the back door to the house be painted (a family pet had scratched up the back door, leaving exposed wood). The buyer, at their own expense, purchased the paint and painted the back door. They considered this a small price to pay for the deal to go through, and the seller was not in the state or willing/able to invest any money into this home. The deal closed to the satisfaction of both the seller and the buyer. That exposed wood could have been a broken window, missing roof shingles, or some other repair deemed mandatory by the lender. Know what you are willing/able to invest in regard to repairs and inspect the house properly to ensure you know the big ticket items in advance of the closing. That is true of any home purchase, and not just a short sale.
1 vote Thank Flag Link Mon Mar 15, 2010
Novella: Yes, a buyer can use FHA financing on a short sale.

How competative is your market. Will your FHA buyer be competing with other buyers?

If your area is competative and there are other offers being submitted on properties then you may want to have your buyer submit a higher Earnest Money Deposit than the typical 1% to make their offer more competative.

Good Luck
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1 vote Thank Flag Link Sat Mar 13, 2010
Yes you can and I would recommend it. In our area, the market is strong right now. You have a much better chance with FHA or VA on short sales than on REO's. Why.... when I take an offer on a short sale, I am going to take one that is going to stick around. Conventional and cash have a stronger chance at getting a bank owned due easy close and stronger buyer. In addition, they don't mind as much asking for closing cost.

The biggest problem with short sales is getting the buyer to stick around. So convience the listing agent that if they accept your offer, your buyer will stick around and you up your odds of getting in first position. In addition, on short sales... I almost always ask for sellers concessions on short sales where not as easy to do on bank owned.

For these reasons.... I say, a strong Yes. And banks usually do not care on a short sale how you are financing where in general... the picking order for a bank owned is Cash, Conventional, FHA, VA.
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1 vote Thank Flag Link Sat Mar 13, 2010
Yes, you can use FHA to buy a short sale
1 vote Thank Flag Link Fri Mar 12, 2010
The answer is yes, absolutely. Is it probably the best option? Maybe not.

Typically FHA buyers are stuck with a strict set of parameters and price points. They can be tight on debt to income ratios and not flexible in moving up in price if necessary. The sellers lender often times will counter the originally agreed upon offer, and then what? If you cannot move on price, then time has been wasted by all and the seller could end up in foreclosure if there is a sale date looming.

I just had an offer on one of my short sale listings. It was a condo in Lynnwood. The offer was within a few percent of asking price and only on the market a few days. The buyer was FHA and they wanted more in closing costs than their down payment. The agent for the buyer mentioned that they NEEDED this closing cost money to do the deal and hoped the bank would make it work for them.

I did my best to explain that the bank can and will counteroffer the deal and that it is my job to justify the price and offer with my own BPO and appraisal that is submitted to the lender and actually negotiate rather than just sit back and take what the bank throws at me. They backed out of the deal within 6 hours of sending over the offer.

So, in my humble opinion, most of the time, it is not a good fit. Can it work, yes! Absolutely. Will I work with someone who is an FHA buyer and they really love the house and want it? Yes, I am right now and we are awaiting the banks response. However, I make sure the buyer knows the pitfalls that can take place and assure them that I will do my best for them, but try to manage expectations in such a way that they are not devistated if the deal falls through.

It is unfortunate that the people willing to actually pay market value for some of these short sales are the very people who may not be the best candidate for the deal to go through.
1 vote Thank Flag Link Fri Mar 12, 2010
I wouldn't recommend it ... the problem is that the bank has to still approve it. What happens if your pre-approval expires? What happens if their job status changes? What happens if their debt ratio changes (i.e. Xmas shopping)
the bank will definitely not concede closing costs because that simply means more money out of pocket
also FHA appraisals are stricter - any structural issues will throw it out of contention to close... and if the seller is in short sale, how will they come up with money to fix an issue?

There are great deals out there and right now since you can't get a mortgage for more than a borrower can afford, people are chasing short sales because they think they can buy more house that way. If you're looking for a value property - at any price range - just look at a cluster of short sales and find a seller-controlled listing in that community. You may not have the lowEST list price but based on the timing, the ability to negotiate, the ability to have the seller bring the property up, the surity that someone has been paying the electric bill and maintaining the property - these are all reasons why you should reconsider taking an FHA approved buyer to a short sale

until this mess is sorted out, I consider short sales (in my market) to be properties that just won't sell
1 vote Thank Flag Link Fri Oct 10, 2008
Short sales often require substantial home improvements because of deferred maintenance, abandonment or vandalism by the financially distressed home owner. FHA offers the 203(k) Rehabilitation program for the acquisition and renovation of such properties. It combines a purchase-money loan with a construction loan, allowing the borrower to complete two tasks without the cost and hassle of obtaining two separate loans.

Tell her your situations Here:
0 votes Thank Flag Link Wed Jul 22, 2015
Yes you can! When the short sale package is presented to the short sale lender, a pre-approval letter or proof of funds must be included. The pre-approval letter can be for any type of loan, including FHA.
0 votes Thank Flag Link Sun Mar 14, 2010
Absolutely, you can use an FHA loan. I would contact Sheila Dees at and tell her your situation
0 votes Thank Flag Link Sun Jun 29, 2008
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