I have been asked several times in the last few months; how long do you have to wait before buying a home after a short sale?
The answer to this question varies depending on the loan program a buyer is looking at, but most buyers who have past credit problems rely on FHA loans as their fastest track back to homeownership. This is due to FHA’s lenient credit guidelines compared to conventional loan programs.
The new FHA guidelines say a buyer cannot buy for 3 years if they were delinquent on their previous loan leading up to the short sale. This timeline is identical to FHA guidelines on a foreclosure.
The guidelines do say a homebuyer can buy immediately following a short sale IF they were current on their mortgage and other installment debt payments at the time of their short sale and if the proceeds from the short sale were accepted as a payment in full. In other words, if you were not late and the bank accepted your sale, you can buy again.
FHA Loan: 3 years. Circumstances allow less than 3 years if the homeowner wasn’t late during the short sale or circumstances were outside the homeowner’s control.
Conventional Loan: 2 years with 20% down, 4 years with 10% down or 7 years with no restrictions.
VA Loan: 2 years as the VA states they treat foreclosures the same as bankruptcies for seasoning. Short sales aren’t bankruptcies but since the VA reviews mortgage history in the last 2-years very closely, I don’t see VA releasing updated guidelines other than adding verbiage stating short sales are included.
USDA Loan: 3 years unless USDA’s underwriting engine (GUS) approves you sooner. Typically 2-years with re-established credit. The USDA handbook has specific guidelines for debt that is paid off for less than what is owed, which a defaulted short sale falls under. I’ve found that GUS typically approves a client after 2-years of re-established credit but sometimes sooner.
There is rumor that there are some lenders that will allow you borrow for the purchase of a home the next day after a short sale, but I have not found any lenders as of yet. My guess is it is possible to get a loan right away after a short sale, but the interest rate would be significantly high. – Similar to a hard money loan.
The best source to obtain the best answer depending you your particular circumstances will be a qualified Lender.
Please contact me and I will be happy to provide you with names of lenders that will be able to find you a loan.