Buying a home after a past short sale

If you sold a home as a short sale or preforeclosure sale in the past, is it possible to purchase another home now?

The answer is not a “one size fits all”, but in general, it may be possible with the passage of time and with some effort to get your credit cleaned up.

How much time must pass before buying again?

Many mortgages in the U.S. fall under the Fannie Mae and Freddie Mac guidelines.  The government has a page regarding home buying after a distressed sale, charge-off, deed in lieu of foreclosure, foreclosure or similar transfer of ownership (or a bankruptcy) that spells out some of the guidelines that Fannie Mae and Freddie Mac use in determining a home buyer’s credit-worthiness.  Most banks will use these, at least as a starting point.  Have a read:

Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (07/29/2014)

For many who had a past short sale, there will be a four year waiting period for purchasing with conventional financing unless there are “extenuating circumstances” such as death or job loss, in which case it may be only two years.

However, these are only the Fannie and Freddie guidelines.  Banks may have more stringent requirements.  Jumbo loans will have longer wait periods, also – seven years, not four.

If you are willing to look at loans which are not managed by these guidelines, things may be easier for qualifying for a loan.

FHA backed financing may be helpful for buyers in Santa Clara County in which the loan amount does not exceed $625,500 (the FHA limit in the San Jose area).  For most, it’s a 3 year waiting period rather than 4.  If there was a job loss or significant loss of income, that time may be reduced to just one year with the “back to work” program.  These are FHA guidelines only, though – your lender may have more challenging requirements.

If you happen to qualify for a VA loan, that waiting period is also much shorter – just one year.

It should be added that getting FHA or VA financed loans through the multiple offer scenarios which are common in Silicon Valley is no small challenge even without a derogatory credit event.

What to do? Speak with a lender experienced in assisting home buyers after a default, deed-in-lieu, preforeclosure, short sale, or foreclosure.   See what programs may work for you.  Remember, it’s not one size fits all – you’ll want to talk with a lending pro who can factor in everything to help you see the possibilities now and in the future.