When Can I Get a Mortgage After Short Sale?

If you sold your home through a short sale, you'll have to wait before you can qualify for another mortgage. Find out how long.

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 will take a hit after a short sale, although possibly not as much as it would if you had lost your home through 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. Read on to learn more.

Getting an FHA Loan After a Short Sale

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

No Waiting Period

You might not have to wait to apply for a 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 must wait at least three years before applying for another FHA 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.

When You Will Not Be Eligible for a New FHA Loan

Notwithstanding whether or not you defaulted on the old mortgage loan, you are not eligible for a new FHA loan if you were using the short sale simply to take advantage of cheaper housing prices. That means you cannot use the short sale as a way to get rid your old house in a declining housing market and buy a comparable house for a lower price.

Getting an Fannie Mae/Freddie Mac Loan After Short Sale

Waiting periods for a Fannie Mae or Freddie Mac mortgage loan following a short sale vary, depending on the circumstances. For a Fannie Mae or Freddie Mac loan, your waiting period will be:

  • four years or
  • two years, if there are extenuating circumstances.

Conventional, Private Lenders

For most other types of lenders, the waiting periods can vary. Most lenders tend to follow Fannie Mae's guidelines for post-short sale mortgages. Other lenders may 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 FICO Score

Notwithstanding the waiting periods, for each type of lender, you must still establish good credit following the short sale. That means your credit score, usually your FICO score, must meet the lender's minimal requirements to qualify for a post-short sale mortgage loan. 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. (Learn about credit scores.)

Short sales can 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:

  • always pay your bills on time
  • keep your credit account balances low
  • monitor your credit report for errors and inaccuracies, and
  • maintain a small number of credit accounts.

Monitor and Correct Your Credit Report

It is essential that you review your credit report immediately if you anticipate applying for a new mortgage following a short sale. That is because short sales are frequently reported as “foreclosures” on credit reports. If your short sale is reported as a foreclosure on your credit report, you may be erroneously denied a new mortgage loan because:

  • your FICO score is lower than it should be (foreclosures are more damaging to FICO 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.

(To learn about the impact of foreclosure on your ability to get a new mortgage, see When Can I Get a Mortgage After Foreclosure?)

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. (Learn how to correct errors, outdated information, or missing information on your credit report.)

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