When Can I Get a Mortgage After Short Sale?

If you've lost your home through a short sale and want to get another mortgage loan, you might be wondering how long you'll have to wait. Your credit score will take a hit after a short sale, although possibly not as much as it would if you had lost your home to a foreclosure. Nevertheless, a short sale will likely prevent you from getting another mortgage right away.

The amount of time you must wait before applying for a new mortgage loan depends on the loan type and your credit history. The chart below shows how long the waiting period is after a short sale for different kinds of loans, with more details below.

Keep in mind that a short sale will cause a significant decline in your credit scores, making it more difficult to get a new mortgage. How much your scores will fall depends on the strength of your credit before losing your home. If you previously had excellent credit, your score will go down more than if you'd already had late or missed payments, charged-off accounts, or other negative items in your credit reports.

Getting a Fannie Mae or Freddie Mac Loan After a Short Sale

Some mortgage loans adhere to guidelines that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) set. These loans, called "conventional, conforming" loans, are eligible to be sold to Fannie Mae or Freddie Mac.

The waiting period for this kind of mortgage loan following a short sale varies, depending on the circumstances. Your waiting period will be:

• four years or
• two years, if extenuating circumstances (that is, a situation that was nonrecurring, beyond your control, and resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations) exist.

Getting an FHA-Insured Loan After a Short Sale

The amount of time you must wait to obtain a new FHA -insured mortgage varies, depending on your credit history and the reasons for the short sale.

When a Waiting Period Isn't Required

You might not have to wait to apply for an FHA-insured mortgage loan following the short sale if:

• you made all mortgage payments on the prior mortgage within the month due for the 12-month period preceding the short sale, and
• you also made your installment debt payments for the same time period within the month due.

Three-Year Waiting Period

If you were in default on the old mortgage loan at the time of the short sale, then you usually must wait at least three years before applying for another FHA-insured loan.

Exceptions to the Three-Year Waiting Period

You might be able to qualify sooner than three years if you can show that extenuating circumstances caused the mortgage default, like a serious illness or death of a wage earner. Divorce isn't considered an extenuating circumstance. An exception may, however, be made when a borrower's mortgage was current at the time of the borrower's divorce, the ex-spouse received the property, and there was a subsequent short sale. The inability to sell the property due to a job transfer or relocation to another area doesn't qualify as an extenuating circumstance.

Getting a VA-Guaranteed Loan After a Short Sale

You'll generally have to wait two years after a short sale before you can get a VA-guaranteed loan, but you might not have a waiting period if you were current on the loan before the sale.

Other Types of Loans

Waiting periods can vary for most other types of loans, like subprime or jumbo loans. Some lenders follow Fannie Mae's guidelines. Other lenders shorten the post-short sale waiting period, provided that you make a larger down payment (sometimes 25% or more) and agree to a higher interest rate. You'll also need to have good credit.

Your Credit Scores Also Affect When You Can Get a New Mortgage Loan

Notwithstanding the waiting periods, you must still establish good credit following a short sale to get a mortgage loan. So, your credit scores, usually your FICO scores, must meet the lender's minimal requirements to qualify. Alternatively, while you might be able to get a new mortgage with a low FICO score, you could have to make a larger down payment or pay a higher interest rate.

Which Credit Score Is Usually Used for Mortgages?

FICO scores are used in the mortgage-lending business. Scores generally range from 300 to 850. FICO has many different scoring models, like FICO, FICO 8, and FICO 9. A person's score usually varies depending on the model used to produce it and which credit reporting agency provided the underlying credit report.

For around 20 years, Fannie Mae and Freddie Mac required lenders to use the "Classic FICO" credit score to evaluate borrowers' credit. On October 24, 2022, the Federal Housing Finance Agency (FHFA) announced that it would eventually require lenders to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to Fannie Mae and Freddie Mac. (The FHFA is the government agency that oversees Fannie Mae and Freddie Mac.) FICO 10T and VantageScore 4.0 consider different types of payment histories for borrowers than Classic FICO. For instance, when available, they include rent, utilities, and telecom payments in calculating scores.

Required Credit Scores for New Mortgages

As of 2022, Fannie Mae generally requires borrowers to have a credit score of 620 or 640, depending on the situation. Depending on the circumstances, Freddie Mac requires a score of 620 or 660 for a single-family primary residence. Of course, lenders may have requirements that are stricter.

An FHA-insured loan with a low down payment (as low as 3.5%) requires a score of 580. You could still qualify for an FHA-insured loan with a FICO score of 500 to 579, but instead of making a 3.5% down payment, your down payment would be higher, at least 10%. But because a foreclosure might cause your FICO score to drop by a hundred points or more, perhaps below 500, you might not qualify for a mortgage loan, even after the waiting period expires.

The VA doesn't set a minimum credit score requirement. But it requires lenders to review the entire loan profile.

Re-Establishing Good Credit After a Short Sale

Short sales damage credit scores. And the higher your credit score, the bigger the drop with a short sale. To re-establish good credit and boost your FICO score, you should:

• always pay your bills on time
• keep your credit account balances low, which keeps your debt-to-credit ratio (also called your "credit utilization rate") low.
• monitor your credit report for errors and inaccuracies (see below), and
• maintain a small number of credit accounts.

Monitoring and Correcting Your Credit Report

Review your credit reports immediately if you anticipate applying for a new mortgage following a short sale. That's because short sales are sometimes reported as "foreclosures" on credit reports. If your short sale is reported as a foreclosure, you might be erroneously denied a new mortgage loan because:

• your credit score is lower than it should be (foreclosures are usually more damaging to credit scores than short sales)
• the lender mistakenly applied a longer post-foreclosure waiting period against you when you would have otherwise qualified, or
• the lender required you to make a higher down payment than what you would have been required to make if the short sale were properly reported.

You should contact all three major credit reporting agencies to correct any errors and be prepared to supply documentation of the short sale to your lender.

Talk to an Attorney

Consider talking to a real estate attorney if you have questions about mortgages or buying a home. If you have questions about foreclosure, consult with a foreclosure lawyer.