Qualifying for an FHA loan after a short sale.

When a previously owned property was sold for less than what was owed (short sale), borrowers are considered eligible for a FHA insured mortgage if, as of the loan application date, all mortgage and installment debt payments were made within the month due for the twelve months preceding the short sale.
Borrowers that were in default at the time of the short sale (or pre-foreclosure sale) are not eligible for three years from the date of the sale.

Borrowers who sold their property under the FHA pre-foreclosure sale program are not eligible for three years from the date that FHA paid the claim associated with the pre-foreclosure sale.
Lenders may make exceptions for borrowers in default at the time of short sale if
The default was due to circumstances beyond the borrower s control (such as death of a primary wage earner, long term uninsured illness, etc.); and
The credit report reflects satisfactory credit prior to the circumstances (beyond the borrower s control) that caused the default.

Borrowers who pursued a short sale agreement on their principal residence to take advantage of declining market conditions and purchase a similar or superior property  within a reasonable commuting distance are not eligible for a new FHA insured mortgage.
For guidelines regarding treatment of existing principal residences converted to rental properties, see Handbook 4155.1 4.E.4.g.

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