Q.Dear LoanSafe.org, My husband and I have been trying to get a loan modification for the past year and a half and have exhausted all of our resources just to stay out of foreclosure. At this time we feel our best option may be to short sale our home and move elsewhere. However, we cannot decide whether or not we want to rent or buy a new home right away after the sale occurs, or if we will even be allowed to do so.
Our question to you is, “Can we get a mortgage after a short sale?”
A. Many people wonder and are often confused about whether or not they will be able to obtain financing after they short sale their home. It is not surprising why many people do not know the answer to this with all the changes to the housing market that have occurred over the past few years. Under certain circumstances it is definitely possible and quite easy to get a new mortgage. Both Fannie Mae and the FHA have recently changed the requirements for this situation and it will depend on certain factors, if, and when you will be able to secure a new home loan.
If you are currently up to date on your mortgage you may want to try maintaining the payments as long as possible until the sale goes through. It will be much easier to buy a new home if you are able to do so and you will be able to save yourself from a huge credit hit. We have seen quite a few homeowners here on our forum who have managed a short sale while current and the affects credit wise were very minimal. However, if you cannot manage to do so do not worry because you may be able to buy again within just a couple of years. But, this will take hard work on your behalf to rebuild your credit score during this time.
- Here are the basic requirements set forth by Fannie Mae:
Fannie Mae now allows borrowers to obtain a new mortgage after twenty four months from the date of closing. However, to qualify for a new loan within this time period a 20% down payment will be required. For those who can only manage a 10% down payment the wait may be up to four years or more. However, if one can prove “extenuating circumstances” such as such as job loss, health problems, divorce, etc, then you should be able to purchase immediately after two years.
If you are able to maintain current up to the date your home closes, have a good debt to income ratio, and have a impeccable credit rating you may be eligible for a new loan right away.
Here are the new FHA requirements: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf
Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage:
- All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
- All installment debt payments for the same time period were also made within the month due.
- Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
- Lenders may make exceptions to this rule for borrowers in default on their mortgage at the time of the short sale if
- The default was due to circumstances beyond the borrower’s control (such as death of primary wage earner, long term un-insured illness, etc.), and
- The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default.
You will want to make sure you manage your credit wisely over the next few years as your slowly rebuild your credit wisely. Open a couple small credit accounts where you maintain about 40% balance and pay on time monthly. In addition, you do not want to make an emotional decision when you decide to buy more real estate. You need to get educated and make sure that you do not get into another bad investment that had just caused you to short sale because in the real world, it is not always a good time to buy a home and sometimes it is better to just rent.