Mortgage After Short Sale: How Long? | Credit 101 Ep. 157

A short sale, where you sell your home for less than the amount owed on the mortgage, can have a substantial impact on your ability to secure a new mortgage. Understanding the waiting period and steps to take can help you plan for your future home purchase.

1. Waiting Period for a New Mortgage

The waiting period for obtaining a new mortgage after a short sale varies based on the type of loan and individual circumstances:

• Conventional Loans: Typically, you must wait 4 years after a short sale to qualify for a new conventional mortgage. This period can be reduced to 2 years if you can demonstrate extenuating circumstances and have maintained good credit since the short sale.
• FHA Loans: The Federal Housing Administration (FHA) generally requires a 3-year waiting period after a short sale. However, this period can be reduced to 1 year if you can prove that the short sale was due to extenuating circumstances and you have re-established a positive credit history.
• VA Loans: For Veterans Affairs (VA) loans, the waiting period is typically 2 years. This period can be shorter if you have shown strong creditworthiness and the short sale was due to circumstances beyond your control.
• USDA Loans: The U.S. Department of Agriculture (USDA) requires a 3-year waiting period after a short sale. However, this period might be adjusted based on your overall credit profile and specific circumstances.

2. Factors Influencing the Waiting Period

Several factors can influence the waiting period for getting a new mortgage after a short sale:

• Credit Score: A higher credit score can potentially reduce the waiting period. Maintaining a good credit score and demonstrating financial stability can improve your chances of getting a new mortgage sooner.
• Extenuating Circumstances: If you can prove that the short sale occurred due to extenuating circumstances, such as job loss or medical emergencies, some lenders may offer more lenient waiting periods. Documentation and a strong credit history are crucial in such cases.
• Current Financial Situation: Lenders will assess your current financial situation, including income, debts, and overall creditworthiness. Demonstrating a stable income and responsible financial behavior post-short sale can positively impact your application.

3. Steps to Take After a Short Sale

To improve your chances of securing a new mortgage after a short sale, consider the following steps:

• Rebuild Your Credit: Focus on rebuilding your credit score by making timely payments on all debts, reducing outstanding balances, and monitoring your credit report for errors.
• Save for a Down Payment: Accumulating a substantial down payment can improve your mortgage application and potentially reduce the waiting period.
• Work with a Mortgage Broker: Consult with a mortgage broker or financial advisor who can guide you through the process and help you find the best mortgage options based on your situation.
• Review Your Finances: Ensure that your financial situation is stable and that you have a budget in place before applying for a new mortgage.

4. Impact on Your Future Mortgage

Securing a new mortgage after a short sale requires careful planning and understanding of the waiting periods and eligibility criteria. By following the steps to rebuild your credit and improve your financial situation, you can position yourself for a successful mortgage application and future homeownership.

Conclusion

The waiting period for obtaining a new mortgage after a short sale varies depending on the type of loan and your individual circumstances. Understanding these waiting periods and taking proactive steps to improve your credit and financial situation can help you successfully navigate the process and achieve your homeownership goals.