Mortgage After A Short Sale
A short sale is when you owe more money on your home than its value and have to sell it. A short deal is when your lender agrees to accept less than what they owe you. This can negatively impact your credit score and ability to finance a house in the future. Below are some ways short sales can affect your credit. You will also learn how long it takes to obtain a new loan.
Credit Score Impacts
A short sale report will be placed on your credit reports with remark codes like "settled less than the full amount." If you do not make any late mortgage payments, this could result in your credit score dropping as low as 50 points. On the other hand, if you make late payments during the short-sale process, your score could fall as high as 200 points. A short sale will remain on your credit report for seven-year. However, you can still finance a new home purchase within one to seven years, depending on your credit score, loan type, downpayment, and circumstances.
Short Sale: Getting A Conventional Loan After A Short Sale
After a short sale, you can obtain a conventional mortgage-backed Fannie Mae and Freddie Mac as long as the requirements are met.
The mortgage must have a primary residence and a maximum loan-to-value of 90% for Freddie Mac loans. In addition, Refinances must meet Freddie Mac's requirements and be a "no cash-out" refinance mortgage.
Fannie Mae loans allow you to get a mortgage within four years of the date of the deed-in-lieu foreclosure, preforeclosure sales, or charge-off. However, if extenuating circumstances are documented, a two-year waiting period may be allowed.
A short sale can have a significant impact on the rate of conventional loans (non-FHA). Rates are lower for those with high credit scores of 760 and higher. Rates rise when credit scores fall. Rates will be lower for those who have larger down payments. Conventional rates can swing up to 0.5 percent, depending on credit score and downpayment factors.
After A Short Sale, Getting An FHA Loan
FHA requires that borrowers wait for three years after a short sale to be eligible for a new mortgage. The date of the Short Sale title transfer begins this three-year waiting period.
In August 2013, FHA guidelines were updated to reduce the waiting period for borrowers experiencing financial hardship or whose household income has dropped by 20 percent for at least six consecutive months. Borrowers who fit these criteria can apply for an FHA loan within 12 months. They will need to provide documentation detailing their hardship and complete one hour of HUD housing counseling either in person or over the phone.
FHA mortgage rates won't be affected as badly by a short sale. Lenders don't have to pay more if their credit scores or down payments drop because the government backs them.
Each Lender Is Different
These guidelines are based upon FHA, Freddie Mac, and Fannie Mae guidelines. Lenders can "overlay" additional stringent guidelines or short sale timelines to this guidance. Find a lender who will review your short sale profile to determine the best loan products and timelines for you. Ask your lender if there are any overlays to their short sale qualification guidelines or if they can be as flexible or as flexible as Fannie/Freddie or FHA.
