Home owners who have had to sell their homes via a Short Sale often ask me how long must they wait before they can purchase a home again. Short Sales typically occur when the homeowner is unable to sell because they owe more than the home is worth. Often in these situations the owner has had some credit issues, due to changes in income status due to loss of job, health problems, divorce, etc.
Thankfully homeowners are not punished forever when this occurs. The key to purchasing a new home is dependent upon re-establishing credit and waiting the required about of time.
Here are the Current Guidelines for Purchasing After a Short Sale:
FHA has a three year wait period for borrowers who were in default at the time of the short sale (or pre-foreclosure sale). FHA tends to be a popular option as the minimum down payment is currently 3.5% and FHA is more forgiving with credit than Fannie or Freddie.
Fannie Mae has various wait periods depending on loan to value:
- 2 years with a minimum 20% down payment
- 4 years with a down payment of at least 10%
- 7 years with standard down payment guidelines.
Freddie Mac has a 4 year waiting period.
Fannie Mae and Freddie Mac may consider "extenuating circumstances" which would allow a buyer to be considered eligible at 2 years.
The date of the short sale is based off of the date closed as disclosed on the final HUD-1 Settlement Statement from the closing of that sale. Potential home buyers should until three years have passed from that date before entering a purchase and sales agreement or a loan application.
Underwriters will scrutinize a borrowers credit history following a "derogatory" event, such as a short sale. Late payments on a credit report following a short sale and low credit scores will impact a borrowers odds of becoming "approved" with a lender. Lenders will want to see that the credit has been re-established with three to four credit lines in good standing with a two year history.
Get a Game Plan Started To Repair Your Credit As Soon As Possible!
If you've had a short sale in the past few years and are considering buying your next home, please contact me. I can suggest a few lenders who would be glad to consult with you by reviewing your credit report. There could be items disclosed on your credit report that you may want to deal with or perhaps you need to work on re-establishing credit. Starting early will help make sure that once your waiting period is over, you're in a better position to become pre-approved to buy your next home.
Please keep in mind that the information in this post are based on guidelines as of the date this article was published. Fannie Mae, Freddie Mac and FHA guidelines change often as do lender's underwriting overlays.