Short sale? When can I buy another house?

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Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Over the last several years, especially in the wake of what I like to term as the foreclosure crisis, many homeowners found themselves in a situation where selling their house for less than they owed on the mortgage was the only option.

This is commonly referred to as a short sale and this will show on your credit report. When Julie (name changed) was referred to me from her Realtor, she had been told so many different waiting periods before she could buy that she didn’t know what to believe anymore.  I’ll agree with her, it can be confusing.

The time frame varies between programs, anywhere from no waiting period to 7 years!  Julie was told that she would need to wait 3 years. In her case this was wrong and she moved into her new home less than one year after her short sale.

Here’s why:  FHA, Conventional and VA programs all have different requirements.  Julie was able to take advantage of the FHA program that allows immediate purchase of a new home as long as the mortgage on the prior home that was sold has a payment history that was on time for the prior 12 months.

Here are the programs and their timelines as of today:

Conventional:

  1. 7 years with a down payment <10%
  2. 4 years with 10% down.
  3. 2 years with 20% down.

FHA:

  1. 3 years if the prior mortgage had any late payments.
  2. No wait if the prior mortgage was paid on time and the borrower can show specific hardship reasons for the short sale.

VA:

  1. 2 years in most cases.
  2. No wait if the prior mortgage was paid on time and the borrower can show specific hardship reasons for the short sale.

As always, talk to a professional to ensure that you meet all the guidelines in addition to this general synopsis. That’s what we are here for, to help you understand and walk through each part of this process!

-Matt

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