The common idea for the past several years in the real estate and lending world has been that once you sell as a short sale, you have to wait 2-3 years before you can buy a home again. Well, this is true, but there are some extenuating circumstances where it is possible to quality for an FHA purchase immediately after a short sale. In order to qualify you must meet these standards set forth by HUD:
You Are Not Eligible If:
- You are simply taking advantage of market conditions.
- You are trying to purchase a home at a reduced price that is similar or better to your current property within a reasonable commuting distance.
This means you can’t simply short sale your home so you can buy a similar home for cheaper because prices have declined. Short sales are meant for home owners who are facing financial difficulties. If you’re going to abuse the system because you don’t want to pay your mortgage anymore, you’re going to have to wait a few years before you can purchase again.
You Are Eligible If:
- You’re current on your mortgage at the time of the short sale and weren’t late anytime during the 12 months prior to the short sale date.
- All your other debt installment payments were current during the same period of time.
- Home sold is not an FHA loan.
- Sold home must not require a deficiency judgement for the amount sold short.
- Credit score of 620 or more.
- Short sale caused by an extenuating circumstance such as death of primary wage earner as long as the credit score prior to the circumstance was sufficient to qualify for a loan.
- Documented sickness or illness to the borrower that prevents them from making payments.
- Job loss and loss of income or the borrower must relocate for work.
- Circumstances considered beyond the borrowers control.
If you’re current on your mortgage and didn’t miss any payments during the time of your short sale, you may be eligible to purchase another property immediately after using an FHA loan if you meet all these requirements set forth by HUD. Talk to your real estate agent and a trusted lender about your options if you feel you meet these requirements.
What If I Don’t Meet The Requirements?
You might think t’s not your fault the real estate markets have declined so why should you have to pay for a home that’s not worth what you paid? This is a reasonable concern. The answer is you don’t. It’s up to you to make the decision if you want to walk away or try to short sale.
However, if you don’t meet these guidelines when doing a short sale, you will have to wait to buy again. For an FHA loan, you will have to wait at least 3 years if not longer. If you’re trying to purchase using a Fannie Mae conventional loan, you will have to wait at least 2 years and have 20% down.
So basically, if you sell your house in a short sale, but do it perfectly, and then get a new, well paying job, or inherit a bundle, you can buy again. But short sales are for people in financial distress, and most will not be able to scrape together this kind of money for a while, or improve their credit scores this quickly. Like many government housing rules, it looks good from the surface, but underneath so few people qualify it seems like kind of a waste.
Filed Under: Living in Portland, Moving to Portland, Real Estate Tips