Qualifying for a mortgage after a short sale

Mortgage and Lending with Morgan Financial

Many Thousands of Americans have had to sell their house through a short sale in the past few years.  Who would have guessed a few years back that prices would plummet like they did?  Here in Brevard County, home prices in some areas have been more than cut in half. 

If you had to sell your house short, more than likely the credit report will show a mortgage settled for less than owed.  If you go to apply for a mortgage, there are new rules surrounding this type of derogatory credit.  The new rules  for Fannie Mae says that it must be 2 years from the completion of the short sale, with no exceptions.  This is fairly straightforward.  If you had a short sale in the last two years, you are ineligible for a loan which is bought by Fannie Mae (that is all conforming loans, or anything that is not government). 

US Department of Housing and Urban Development  (HUD), who determines the rules for FHA loans, has not made a ruling on short sales as of when this article was written.  While this may sound promising, the majority of the lenders are treating short sales on FHA loans like they do on conventional loans.  However, there are a few lenders out there that will entertain a short sale if there are extreme extenuating circumstances prior to two years.  Otherwise, like on a conventional loan, you must wait two years.

So here is the long and short of it:  if you have recently experienced a short sale, you will be ineligible for  a conventional loan for at least 2 years; you may be eligible for FHA financing, however, you will have to prove that there were extenuating circumstances.  These extenuating circumstances could include loss of job, death of a wage earner, hospitalization, or some of these sorts.  Additionally, you cannot have had any mortgage lates in the last year.  For a loan to be considered prior to 2 years, it must be strong.

There is life after short sales, however, it seems as though for loan qualification purposes, it starts after 2 years for most.  This is really not that long of a time, and there are probably some people who went through a short sale a few years back that are ready to buy again.  For more information, contact Joe Harris.

Damon Daniels
Sierra Pacific Mortgage - Midlothian, VA
Mortgage Loan Officer | NMMLS 193536


I just ran into a similar scenario today with USDA Rural Housing. My client is getting divorced and cannot afford the house by himself. The lender agreed to a short sale and it will close this month. He and his soon-to-be ex-wife have not missed any payments. He's doing the right thing but is still prohibited from buying a new home he can afford. This is a situation that deserves an exception (in my opinion) but I'm not holding my breath.

Oct 01, 2009 05:03 AM
Monika Rodriguez

Hello Joe,

My husband and I sold our home in a short sale this past July.  This was the result of losing my job and my husband closing his specialty woodworking shop due to lack of business.  It took us from November to July to get approved for the short sale and get it sold.  During that time, we were unable to pay our mortgage, but we had never missed or been late on any other payments.  Our FICO score was slightly above 750.  It naturally dropped but is already up to 683.  The Equifax score predictor indicates our original score will be restored to 750 by next June if continue to make punctual payments.  This is the timeframe we're hoping to look for a mortgage.  We'd like to downsize to an affordable town home.  I've read that we may need to wait three years from the date our short sale took place before qualifying for a mortgage again.  From your website, it appears it could be less - around 2+ years.  

These are my questions:  

My husband heard on NPR (radio station) that the government is looking at easing mortgage qualification restrictions to increase home sales as it relates to people who have gone through short sales, etc.  Have you heard anything about this?

Are there any other types of loans available to us other than high risk loans?  I've heard you have to have about 30% down and pay about 12% in interest?

Are there home builders that provide financing?  

Considering the only payments we've ever missed were to the one lender (mortgage company) and the reason was job loss, would this qualify as an exception to qualify for a mortgage sooner? 

If you have any information that would help us, I'd be very grateful to hear from you.




Monika R.

Oct 28, 2009 03:53 PM