There is a lot of misinformation going around about what the impact of a Short Sale is on your credit and whether you can get a new mortgage after short selling a home. Below are the current Guidelines for FHA, and Fannie Mae.
FHA has recently changed their rule so that if a short sale occurred and all of the borrowers payments were made on time (no late payments) then they may be eligible for a new mortgage as long as the short sale was due to extenuating circumstances and not to simply take advantage of market conditions (see below). As you can imagine, this may be difficult to demonstrate. Otherwise, if any payments were made late or you cannot demonstrate extenuating circumstances, then it is a 3 year period before new FHA financing can be considered.
Fannie Mae policy is pretty straight forward – It is a minimum of 2 years to re-establish credit after a short sale.
It is very difficult to predict how a short sale will affect an individual’s credit score because there are so many different factors involved; How good was the credit to begin with? How many house payments were made late? Did they pay all of their other bills on time? Etc, The short sale will most likely be reported as a settled account paid for less than the amount owed and will have a dramatic impact on credit score even under the best of circumstances.
Here is the excerpt straight from FHA:
Borrowers are not eligible for a new FHA- insured mortgage if they pursued a short sale agreement on his or her principal residence simply to
•take advantage of declining market conditions, and
• purchase at a reduced price a similar or superior property within a reasonable commuting distance.
Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g
Borrowers Current at the time of Short Sale
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 at the time of Short Sale
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.
Note: Borrowers who sold their property under FHA’s pre-foreclosure sale program are not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.
This is Fannie Mae’s Guideline:Preforeclosure Sale
A two-year period is required to re-establish credit, measured from the completion date.
Victoria,
If your husband is not obligated on the mortgage on your home then he will be unaffected by any shortsale of that house. Assuming he qualifies for a new mortgage he could buy another property in his own name and get a mortgage on his own. You could not be a co-borrower but he may be able to use someone else depending on the mortgage companies in your area and there guidelines. I can’t speculate on what a bank might approve or not approve in a shortsale
Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan rose to 3.95 percent. That’s up from the previous week’s rate of 3.87 percent, the lowest since long-term mortgages began in the 1950s.
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I had an equity line of credit and just short sale on a house. The title was under both my wife and I. But bank of America charged off the account. It,s been two years since the short sale. Will I be able to get another loan and when,. If not how will I able to get another loan because I can,t afford to pay the charge off loan amount. Is there any loans for me out there .my credit score after the two years is good. Another thing is that boa said I was 30 days late on my payments. I tried to settle with boa but they were asking for a high price I couldn’t. afford. I even got a lawyer to help but boa wouldn’t settle. What should I do now
Edwin,
Based on today’s lending guidelines, As long as you have an outstanding balance on a mortgage charge off you will not be able to obtain new mortgage financing. You would have to settle that account with the lender.
What happens if I settle with the lender. Will I still have to wait to purchase a mortage. Or can I proceed for a new mortage. And what exactly must my lender write on The settlement documents
Ed,
Because that loan is going to be considered in default it would be a minimum of 3 years after the short sale date before you would be considered eligible for a new mortgage. The loan should show on the credit report as “settled for less than full balance”
What if you were on the deed of the short sale through marriage however there was in no way was there any financial obligation to me or my credit. The condo, loan etc… was all in my wife’s name.
Rob,
If you were not obligated on the mortgage then you will be unaffected by the shortsale.
My mortgage company, GMAC, has offered us a short sale opportunity. I am currently unemployed, making reduced payments (runs out November 2012) and am under water by at least 50k. I could be getting a new job soon, however. Can I still short sale it once I get word that I got the job? Or do it do it now even though I have no place to live set up at this point (and of course, no job).
Dan,
Whether you can short sell the house is completely up to the lender. I can’t say whether their decision will be impacted if you get a job. Unfortunately, I can’t tell you what to do either. You need to do what you feel is best for yourself.
We are short selling our condo because of the market conditions. We have a condo that is in a good neiborhood, but the HOA is running it down and market conditions are bad. We have come into an inheritance of a a lot of money, and we want to buy again. We will need a mortgage of about $60,000.00: how do we do this?
Diana,
You don’t. As stated in the blog post and above answers, After short selling your home it will be at least 2 or 3 years before you will be eligible for a new mortgage.
Ken,
I wrote to you initially on 7-20-11 and again on 8-28-11. My girlfriend has narrowed her search to 3 homes. They range in price from $78,000 to $83,500. She has saved $23,000 for a down payment. She’s had stable employment for 13 years with the same company, has an annual salary of $31,000 and literally has no debt. This July 21st will mark the second anniversary of the short sale of her home (my previous notes explain the circumstances).
Now she is being told by her mortgage broker that she will have to wait 3 years before they will consider her application. No doubt you’re thinking there must be something else to this story, something missing, something I’m leaving out. There is nothing. Those are the facts. By next year she plans to have $30,000 saved for a down payment – that’s about 35%.
At what point will the bank consider her a good credit risk? How about when she’s saved $45,000? That would give her a greater equity interest in the home than the lender. Ah, that should do it.
In the property and casualty business we have an example of extreme underwriting similar to the mortgage industry: Here’s how we do it: we offer to write fire insurance on steel as long as it’s kept underwater (and of course we insist on a rust exclusion). Then, we complain about how tough it is to sell property insurance.
Bill,
Loans are approved or denied on a case by case basis by the individual lender, so, decisions can be different depending on the lender. I can’t say when she will be approvable because thats up to the lender you’re working with. You can try other lenders and see if you get a different result. One thing is certain – it’s not getting easier to get a mortgage after a foreclosure or shortsale.
Ken,
Thanks for your response. We are checking with other lenders.
I’m sorry, but after dealing with this situation for the past THREE years it is unrealistic to expect a bank to accept an amount that is less than the amount owed if you remain current on your mortgage. Why would they accept a payoff that is lower, if they are still recieving full payment? We are a military family that moved on orders. Our house finally closed as a short sale last June- the ONLY way the bank moved forward is when we stopped making the payment. Yes, our credit dropped from 790 to 690-after the house closed, but it was a small price to pay to be relieved of a home that was 100k under water. If we have to sit our for a year or two, we don’t care!
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