Selling your house through a short sale meant the lender took less for the house than you owed on the mortgage. While you may have avoided a deficiency judgment and are emerging from a rough financial situation, moving forward will take time. Reevaluate your income and expenses, and reestablish your credit worthiness before considering the purchase of another home. Also be prepared to defend your short sale as lenders will ask for documentation verifying you needed to sell your home for less than was owed.
If you missed credit card, car, department store or even gasoline card payments during your financial crisis, your credit score plummeted. Add to that missed mortgage payments, and your reestablishment of credit will take several years. Start rebuilding your credit by getting a secured credit card from your bank. Keep the balances low and pay your charges in full every month. Within several months you may be invited to apply for an unsecured card through your bank. As you emerge into a positive credit standing, apply for different lines of credit. A department store card differs from a gas card. Each is a line of credit, as is a car loan. Scoring companies look at the various lines you have when evaluating your credit score. Pay your rent on time and keep receipts.
You can apply for an FHA loan three years after a short sale has been recorded. You’ll have to pay mortgage insurance. You can try to bypass the three-year waiting period by applying for an FHA loan based on the extenuating circumstances of your short sale. This can include a job loss, family illness or a natural disaster that rendered your home unlivable. Minimum 580 credit score is required for an FHA loan with the 3.5 percent down payment option, although most lenders require scores of 620 or higher. Other lenders offer FHA loans with lower scores, but greater down payments are required.
Most conventional mortgages require a 20 percent down payment and can be applied for just two years after a short sale. You can get a conventional loan with 5 percent down, but paying mortgage insurance is necessary. You’ll have to wait for seven years after a short sale to take advantage of this financing option.
If your short sale involved a VA loan, you’ll have to pay back what the VA lost before applying for another VA loan, and the wait is two years. However, if the loan wasn’t through the VA, you can apply immediately for a VA loan if your credit score is 660 or higher and you didn’t miss any mortgage payments during your short sale.
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