Buying a Home after a Short Sale
March 20, 2014 by dreamwellhomes
There are many factors that will affect your ability to qualify for a loan in order to buy a house again after a short sale. If you have taken good care of your credit since, paid all your bills on time in the last 12 months, have money saved for down payment (as little as 3.50% to 20% down payment), and of course, you have income to qualify after a short sale, then yes, it is possible to buy a house again in as little as 12 months to 36 months after a short sale subject to certain conditions.
How Long Do I Have To Wait After a Short Sale Before Buying a House?
Here are your loan options to buy a house after a short sale
Buying a House with an FHA loan one year after a short sale with 3.5% down payment
Did you know? FHA announced on August 15, 2013 that you may only need to wait one year to be able to buy again under the FHA’s Back to Work Program. FHA is willing to back loans for borrowers with as little as 3.50% down payment after having had a short sale, bankruptcy, or foreclosure. This is subject to guidelines such as having experienced an Economic Event which is beyond your control that results in a Loss of Employment, Loss of Income or a combination of both, which causes a reduction in the your Household Income of 20% or more for a period of at least 6 months. Note: If you did a prior short sale or were delinquent on a prior FHA loan, you will not be able to buy after one year with this program using an FHA loan.
With FHA’s prior guidelines, you can buy a home immediately after a short as long as the mortgage and existing debt has zero late payments in the past 12 months. Extenuating circumstances that lead to your short sale will also have to be documented such as certain hardships like job loss and subsequent job transfer/ relocation at least 2 hours drive time from prior residence, catastrophic medical bills (and/ or possible death) incurred by a member of the borrower’s “nuclear family.
Buying a House with a Conventional Loan TWO years after a short sale with 20% down payment
You can buy a house after two years with a 20% down payment using a conventional loan. While waiting 2 years after your short sale, you should get to work on improving your credit rating and saving for down payment. Saving for a 20% down payment not only helps you buy a home sooner after a short sale, but helps avoid expensive mortgage insurance on loans with less than 20% down payment. With Fannie/Freddie Loans, you will have to wait 4 years if you only have 10% down payment or possibly wait just 2 years if you have extenuating circumstances that lead to the short sale of your home.
Buying a House with a VA Loan TWO years after a short sale with Zero Down payment
You can buy a house after a short sale with a VA loan 2 years after completing a short sale on a prior VA loan. For some VA lenders, the waiting period after a short sale can be as little as one month if you have not been late on any mortgage payments before the final short sale and you have a 660 or better credit score. You might also qualify for an automated underwriting approval and get a VA loan. In general, VA requires a 2 year waiting period from a major derogatory event including short sale, bankruptcy, or foreclosure.
Buying a House with a VA Loan ONE year or less after a short sale with Zero Down payment
If your former loan on the home you short sold was either a VA loan or a non- VA loan, your wait time may be less than 2 years if you have a clear CAIVRS. CAIVRS is a report pulled by lenders for government loans (FHA, VA USDA) to verify that the borrower does not currently owe money to the government for previous mortgage, student loans, liens, etc…
Buying a house after a short sale with 30% down payment just one year after a short sale
If you do not qualify for the FHA back to work program with 1 year wait after a short sale and you have saved 30% down payment, there are lenders willing to finance your home purchase with just 1 year waiting period after a short sale. The applicable interest rates are higher than average rates, typically rates are fixed for the initial five years or 7 years on a 30 year loan until you can refinance again (3 years after a short sale). Some lenders may require a minimum loan amount of $300,000 and may require a credit score of 680 with 12 months of payments cash reserves.
Buying a house 3 years after a short sale
If it has been 3 years after your short sale event, you may now be eligible to buy again with as little as 3.5% down payment. Please be sure to check your credit report to confirm that the short sale was accurately reported on your credit report. Some recent inaccuracies are those of short sales being reported as foreclosures. The short sale is typically reported as settled for less than full balance. If this is not the case, i.e. it shows settled for less than full balance Chapter 5, 8 or 9 (synonymous to foreclosure) be sure to contact the creditor and get this corrected immediately.
Buying a house in 2014 after your short sale in 2010, 2011 or earlier years
Those who have completed a short sale in 2009, 2010, 2011, and earlier years are most likely ready to apply for a loan after a 3 year waiting period has passed from the date of the short sale. You may now be able to buy a home again in 2014 and apply for a loan without consideration of any special circumstances.
Was your prior short sale a strategic default?
A strategic default is when you sold your home to take advantage of the housing market’s past decline and purchased another similar or better house at a reduced price, which is within commuting distance to the house you previously sold. If the short sale of your home was a strategic default then you would have to wait 7 years to qualify for a loan to buy a home again.
Buying a House with FHA loan after a Strategic Default Short Sale
If you did a strategic default as defined above on your primary residence: you may not qualify for a 3.50% FHA Loan in the foreseeable future! Your option: you will have to save more money for down payment and get a conventional loan instead that requires 20% down payment and wait up to 7 years. Unless the rules and guidelines change in the meantime.
Buying a House with Conventional loan after a Strategic Default Short Sale
If you did a strategic default on your primary residence and would like to use a conventional loan to buy a house, you will have to wait 7 years to buy a house again. Unless the rules and guidelines change in the meantime.