63% and 82% FHA RULE
The following is from the HUD website:
How does the lender arrive at the 63% ratio of "As Is" appraised value to outstanding debt and the 82% of estimated sales proceeds to "As Is" appraised value?
ANSWER - To arrive at the 63% ratio:
Divide the "As Is Appraised Value" (APV) by the Outstanding Debt. If the result is 63% or higher, that criterion has been met.
To arrive at the 82% ratio:
Divide the "As Is Appraised Value" (APV) by the Net Sales Proceeds. If the result is 82% or higher, that criterion has been met.
Remember that NO variances can be granted as these percentages, (i.e., 63% and 82%) are the lowest HUD allows.
MY QUESTION: Are these two numbers mutually exclusive? For example - the amount of outstanding debt is $95,000 which includes penalties etc. The original mortgage was for $88,000. Do you use the outstanding debt number or the original mortgage number to calculate the AS IS APPRAISED VALUE? 2ND Question: New example - $100,000 outstanding debt as defined by HUD. 63% of this number is $63,000. If the property appraises for less than $63,000, but the short sale amount is for $53,550 which is 85% of the appraised value. Will this work?
I hope this question is not too complicated, but I am working on several of these, and they just happen to be in BADLY need of repair and they are FHA loans. I don't want to sound like a dummy when I speak to the lender.
THANKS!!!!!!!!!!!!!!
"Do you use the outstanding debt number or the original mortgage number to calculate the AS IS APPRAISED VALUE?"
The as-is, fair market value is not based upon the debt.
When trying to determine the viability of an FHA short, two, separate criteria must be satisfied. The sales price must be at least 82% of the property's appraised value, AND, the sales price must be 63% of what is presently owed (the original mortgage amount is immaterial.)
Both ratios must be satisfied.
(shortsalepro) Maybe you could break down this example to help paint a better picture for everyone, let me set the stage ... This is an actual situation I am working with right now!
A homeowner Finances 167,000 in 1999 on a 181,000 purchase price. Market Value is 190,000 then.
Homeowner 3 years later falls into foreclosure and owes 8k rears. Bank does a partial rewrite as a 2nd for the 8k.
Now, mortgage payments are 1350.00 monthly and theirs 1 month to go before sheriff sale.
If the current appraised value is 200,000 then 82% of that would be 164,000.
If the current amount owed is 178,000 then 63% of that would be 112,140.
She is in Georgia with an FHA and owes 10k on top again!
So, are you saying the Viability lies between the 112,140 and 164,000 and the bank would short somewhere between these two numbers?
3 years @ 1350mo.= 48,600+112,140=160,740 (6260.00) loss to bank on orig fin of 167,000
3 years @ 1350mo.= 48,600+164,000=212,600 45,6k profit to bank on orig fin of 167,000
Is this Viability a standard used nationwide?
In your scenario, "If the current appraised value is 200,000 then 82% of that would be 164,000. If the current amount owed is 178,000 then 63% of that would be 112,140."
Assuming all other short sale criteria is met, the FHA would consider a sales price of not less than $164,000. The second ratio ( debt to sales price) falls within the 62%.
By 'viability' I mean "prequalify" so that you can quickly determine if a potential deal is suitable for a short sale acqusition technique, or not.
If the numbers are out of whack... rethink another strategy. If there is a second mortgagee, they'll be limited to $1000 as payment in full. If the property isn't owner occupied, it won't qualify... if the homeowner's hardship doesn't qualify, no deal. Etc.
blessed13,
thanks for your research on these hud rules. i understand it a bit more now. seems kind of random and arbitrary. i wonder if they are really completely inflexible on these ratios...makes s/s very difficult then with a run-down property with an FHA loan, doesn't it?
thanks again, sewa