Can I get a mortgage after a short sale of my home?

You might be eligible to seek a short sale if you’re having difficulties making your mortgage payments or are underwater on your house. A short sale enables you to sell your property for less than what is still owing on your loan while getting the remaining balance forgiven.

But it won’t be simple to secure a new mortgage after a short sale. Following a short sale, you might need to raise your credit score, save for a down payment, and have a minimum waiting time before you can be approved for another loan. For conventional loans, there may be a waiting period of up to four years following a short sale.

The consequences of a short sale

Short sales are frequently a means for struggling homeowners to avoid foreclosure, which can have more serious financial repercussions. A short sale may be less damaging to your credit than a foreclosure, but both can hurt it. However, the duration of a short sale on your credit record is seven years, which may have an effect on your capacity to obtain credit in the future.

According to Abe Kahan, CEO of TrueRate Services, a commercial real estate investment advisory company, “the reasons can be varied, but a short sale often happens because the seller paid too much or borrowed too much for the property, or the market has declined and the property’s market value is less than the mortgage balance.”

According to Kahan, “the bank or lender typically agrees to a short sale in order to reclaim a percentage of what’s owing to them.”

According to Suzanne Hollander, an attorney and real estate professor at Florida International University in Miami, you and your lender must agree to the short sale before it can move through since you are required to repay your mortgage in full.

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According to Hollander, a mortgage’s “due on sale” provision is a form of acceleration condition that demands that the borrower pay the whole amount at the time the property is sold. “For this reason, a borrower must formally ask the lender for authorization to sell the property through a short sale for less than the loan amount.”

The lender’s standards or processes must be followed in order to pursue a short sale, warns Hollander. Additionally, the procedure frequently requires a lot of time, and many lenders either ignore or reject short sale petitions.

How to get a mortgage after a short sale

The good news is that you can still qualify for a mortgage after a short sale, albeit it can be challenging and take longer. Also possible are rising mortgage rates.

When you do attempt to obtain a new mortgage, be aware that lenders will be extra cautious, advises Steve Nakash, executive managing director of Cherry Creek Mortgage’s Blue Spot Home Loans in Greenwood Village, Colorado. Lenders will closely examine your credit after a short sale to make sure you can make the new payments because you now have a history of not being able to pay.

According to Kahan, a short sale can reduce your credit score by 50 to 200 points, making many loans inaccessible. For instance, because conventional loans normally need a minimum credit score of 680, it could be challenging to secure one following a short sale. For FHA loans, you must have a score of at least 500 with a 10% down payment or at least 580 with a 3.5% down payment.

It will take time and effort to raise your credit score to the required level, but you may try.

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Raisul Islam, a chartered accountant and the director of Hadee Lutful & Co., explains that saving up a larger down payment than the lender’s minimal need might help expedite the procedure.

Minimum waiting period to get a mortgage after a short sale

There are minimal waiting periods before applying for a new mortgage or refinancing following a short sale, depending on the loan type. Keep in mind that these are only minimum standards and may change based on your particular financial position.

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