Buying a home after having suffered a short sale is a waiting game with ever-changing criteria. A two-year period is usually required between the final closing date of the short sale and a lender issuing another loan, but circumstances differ for each borrower. While waiting to re-qualify for a home loan, work to improve your credit score, limit your debts, and re-establish a sound financial profile.
Buying With a Government-Insured Loan
New standards for government-backed Federal Housing Administration loans allow a new FHA mortgage for some borrowers one year after a short sale. Specific guidelines apply for this "Back to Work" program, but a minimum of 3.5 percent down and an economic hardship that derailed your earnings by at least 20 percent for six months or more must be documented. FHA lenders require you to substantiate this hardship by supplying bank statements, pay stubs and tax returns.
Conventional Qualifying After a Short Sale
Use the required two-year waiting period after a short sale to improve your finances before applying for a conventional loan. Raise your credit rating by paying down all credit cards to 30 percent of the amount of credit allowed. Pay all bills on time. Don’t overspend. Live within your means and save. You’ll need at least 20 percent as a down payment for a conventional loan. A 10-percent down payment requires a four-year wait after a short sale.
Other Loans After Short Sale
The Department of Veterans Affairs, which administers the VA loan program, normally asks its VA lenders to withhold lending for two years after a borrower's short sale. An exception is made if you made all mortgage payments up to the time of the short sale, and have a credit score of at least 660.
Improving Finances After a Short Sale
While waiting to qualify for a new loan after a short sale, order a free credit report from one of the reporting agencies and examine it for errors. Make any needed corrections and continue to monitor it. Lower your monthly expenses so that when combined with a new housing payment, you owe no more than 36 percent to 40 percent of your gross monthly income. The exact debt-to-income ratio allowed depends on your future loan type and its guidelines. Living beneath your means and saving during this interim increases your chances of qualifying once the required short sale waiting period expires.
- Forbes.com: FHA Change Adds 2.5 Million Potential Boomerang Buyers Two Years Ahead of Schedule
- Zillow.com: Boomerang Buyers: Buying Again After a Foreclosure or Short Sale
- Dreamwell Homes: Buying a House After a Short Sale in 2013
- Mcgeough Lamaccia Realty: Buying a Home in Massachusetts: FHA Shortens Waiting Period to Buy a Home After Short Sale or Foreclosure
- National Association of Realtors. "Short Sales & Foreclosures." Accessed June 30, 2020.
- American Bar Association. "A Checklist for Insuring a Short Sale." Accessed June 30, 2020.
- National Association of Realtors. "The Short Sale Workflow." Accessed June 30, 2020.
- Federal Trade Commission. "Getting a Mortgage After a Short Sale." Accessed June 30, 2020.
- National Association of Realtors. "Short Sale Relief on the Horizon?" Accessed June 30, 2020.
Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.