How Does A Previous Short Sale Affect A Future FHA Loan Approval?

For individuals who have suffered through a Short Sale Process on a previous mortgaged home, the prospects for obtaining a new home loan through FHA can involve a painful waiting period.  It all boils down to whether they were delinquent on their previous mortgage at the time of their short sale.

Borrowers current at the time of short sale - Borrowers are considered eligible for a new FHA insured mortgage if, from the date of the loan application for the new mortgage, all mortgage payments due on the prior mortgage were made within the month due for the 12 months preceding the short sale and all installment debt payments for the same period were also made within the month due.

Borrowers in Default at the time of Short sale - Borrowers in default on their mortgage at the time of short sale (or pre-foreclosure sale) are not eligible for a new FHA insured mortgage for three years from the date of the short sale.
Note if the short sale was for a property with an insured FHA mortgage, a borrower will not be eligible for a new FHA insured mortgage if FHA paid a claim associated with this short sale.

FHA does permit lenders to make exceptions to this rule for borrowers in default on their mortgage at the time of short sale if the defauilt was due to circumstances beyond the borrower's control (death of a wage earner or long term illness) and a review of the credit report reflects satisfactory credit prior to the circumstances beyond the borrower's control that caused the default on the mortgage.  The granting of exceptions is left to the discretion of each lender.
So even though FHA allows exceptions, it may be difficult to secure one.