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 type of lender and your financial circumstances. The chart below shows how long the waiting period is after a short sale for different kinds of loans, with more details below.
|Loan Type||Waiting Period After Foreclosure|
|Fannie Mae/Freddie Mac||
Generally: 4 years
Extenuating circumstances: 2 years
|FHA-Insured||3 years (Generally, subject to some exceptions)|
|VA-Guaranteed||Likely 2 years|
|Other Kinds of Loans||Varies|
Also, a short sale will cause a significant decline in your credit scores, making it more difficult to get a new mortgage. The amount of that decline 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 payments, charged-off accounts, or other negatives items in your credit reports.
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:
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.
You might not have to wait to apply for an FHA-insured mortgage loan following the short sale if:
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.
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.
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 made payments on time prior to the sale.
For most other types of loans, like subprime loans or jumbo loans, waiting periods can vary. 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.
Notwithstanding the waiting periods, you must still establish good credit following a short sale to get a mortgage loan. So, your credit score, usually your FICO score, must meet the lender's minimal requirements to qualify. Alternatively, while you might be able to obtain a new mortgage with a low FICO score, you might have to make a larger down payment or pay a higher interest rate.
FICO is the most common score 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 instance, Fannie Mae and Freddie Mac generally require mortgage lenders to use the "Classic FICO" credit score to measure credit. The Classic FICO score is also called these names at the major credit reporting agencies:
As of October 2020, Fannie Mae generally requires borrowers to have a credit score of 620 or 640, depending on how the loan was underwritten. Depending on the circumstances, Freddie Mac requires a score of 620 or 660 for a single-family primary residence. Of course, lenders may have stricter requirements.
Short sales damage FICO scores. And the higher your credit score, the bigger the FICO drop with a short sale. To re-establish good credit and boost your FICO score, you should:
Review your credit report 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 on your credit report, you might be erroneously denied a new mortgage loan because:
You should contact all three major credit reporting agencies to correct the error and be prepared to supply documentation of the short sale to your lender.