With home values having fallen so much since the peak in 2006, it’s no surprise that many Americans today have a short sale in their credit histories. With many wanting to become homeowners again, a question I commonly get is when can I buy a house after a short sale?
First of all, it’s important to understand there isn’t any restriction on buying a home after a short sale, just on getting a home loan after a short sale. You certainly are free to purchase a home, you’ll just need to find a very flexible lender (which could be tough) or purchase the home with cash.
Getting financing through the traditional sources likely will be difficult because the majority of financing out there right now is subject to either Fannie Mae or FHA guidelines, both of which restrict lending to homeowners with short sales in their credit history.
What is a Short Sale?
If you’re not familiar with the term “short sale”, it refers to the sale of a home in which the selling price is lower than what is needed to pay off the mortgage. To make a short sale happen, the homeowner (or agent on their behalf) negotiates a reduced balance with the bank so that the house can be sold.
While better than a foreclosure, it’s important to understand that a short sale will typically still damage your credit and could have tax implications. Make sure you consult with a tax or legal expert before considering a short sale.
When Can I Buy a House After a Short Sale?
The following is a general rundown of the short sale waiting period guidelines for Fannie Mae and FHA. Note that these guidelines are subject to change at any time and often have more detailed nuances than what is addressed here. It’s important to consult with a qualified mortgage professional for more specific information about your particular situation.
Fannie Mae Short Sale Waiting Period
The standard waiting period to obtain a new Fannie Mae loan is four years, but it can be as little as two if you are willing to come in with a larger down payment than otherwise required were it not for the short sale. Other guidelines can apply, so it’s important to check with your lender about your particular situation.
FHA Short Sale Waiting Period
If you were current on your mortgage payments and all other installment loans (such as car loans, student loans, etc.) for the 12 months preceding the short sale, there is no waiting period according to FHA guidelines. However, if you were in default on your mortgage at the time of the short sale (which is probably the case for most short sales), the waiting period for a new FHA loan is 3 years.
It’s possible the waiting period can be reduced or eliminated if there are extenuating circumstances beyond your control that led to the short sale (such as loss of income due to death of family member, severe illness, etc.). Though FHA guidelines allow for extenuating circumstances, it doesn’t mean the bank lending the money will as well. This is a gray area in the guidelines and some banks simply don’t want to mess with it.
Work on Rebuilding Your Credit Right Away
If you’ve recently been through a short sale, it’s important that you begin taking steps to rebuild your credit right away. Time is the best healer of credit issues, but if there are any lingering items that need to be resolved on your credit report, getting them taken care of sooner rather than later could make it much easier to qualify for mortgage financing once the waiting period is over.
This is just a very general overview and other guideline nuances can apply. For more detailed information about your particular situation, consult with a qualified mortgage professional.
It’s also important to note that though these are the standard guidelines for Fannie Mae and FHA, lenders that underwrite to Fannie Mae and FHA guidelines might add their own more restrictive guideline overlays.