Many people are asking "Can I get a mortgage after a short sale?" A short sale occurs when a bank agrees to accept less than what is owed on a mortgage loan in order to expedite the sale of the property to a new owner. Obtaining a mortgage after this can be difficult, but possible.
How Can I Get a Mortgage After a Short Sale?
A short sale can damage a consumer's credit score. Because of this, it can make obtaining a new loan more difficult than previously. A short sale can be the credit score equivalent to a foreclosure. Since you did not pay on the loan as agreed and paid less than owed, this reflects negatively on your credit score. In order to get a new mortgage, you must prove you are capable of managing a new loan without the risk of another short sale occurring.
Monitor Credit Scores
If you do not know what your credit score is, find out. Each of the three credit reporting agencies allow consumers to receive a free copy of their credit report one time per year. For a small fee, you can also request your credit score. Most lenders will consider consumers who have a credit score of at least 620, though some lenders will not lend to those under 660. Each lender is different.
After a short sale, a credit score can drop between 100 and 300 points, depending on other factors. After this occurs, spend time working to build up your credit score. You can do this in a number of ways.
- Pay existing credit card and other debt you owe on time each month.
- Keep the amount of debt you have low, but do use credit. Minimal use of credit shows you can use and manage credit. This will boost your credit score.
- Pay your rent on time each month. While this will not influence your credit score, lenders may want documentation from your landlord attesting to prompt rent payments.
Avoid applying for multiple credit cards or loans. Wait until your credit score rises before applying for something new. If you apply for numerous loans in a short period of time, you could risk lowering your credit score more.
Credit scores are an important part of the process to getting a mortgage after a short sale. Lenders want to know you have improved your ability to manage your finances before loaning money to you.
Give It Time
There is not a hard rule for how long you have to wait to apply for a new loan after filing a short sale. In some cases, lenders will agree to provide a loan for you right away, as long as you were not behind on your mortgage payments prior to the short sale. The FHA, for example, may help you to obtain a new loan immediately after the short sale, if you were not behind on your mortgage payments. The FHA has other requirements, including that you must not have been more than 30 days late and you should not have agreed to debt relief repayments as part of the short sale.
For those who were behind on mortgage payments, you likely need to wait. To obtain an FHA loan, you will need to wait at least 24 months before applying for a new loan. Other lenders can require you to wait up to four years to obtain a new mortgage loan.
Talk to Your Lender
Each situation is unique. You should ask the question, "Can I get a mortgage after a short sale?" to your own lender. The lender may be willing to work with you if you have a long history with the bank or credit union. Even if the lender is not willing to do so, they may be willing to provide you with information and guidance on what you need to do to qualify. You may need to wait for your credit score to improve or you may need to give the process time.
The good news is that short sales, like other debts, remain on your credit report for up to ten years. After that point, it's no longer present and will not continue to hurt your credit score. Eventually, if you have the financial means to afford it, most people will have the ability to qualify for a new mortgage.