How Long Do You Have to Wait to Buy Again After a Short Sale?
Waiting Periods After a Short Sale or Foreclosure
It doesn't mean you'll never be able to buy again if you've lost your home through a short sale, foreclosure, bankruptcy, or a deed-in-lieu of foreclosure. You will have to undergo a waiting period first, however, to qualify for a conventional loan from a reputable lender.
A conventional loan is one that's backed by Fannie Mae, the nation's largest purchaser of mortgages in the secondary mortgage market. This is the type of loan that's usually offered by banks and mortgage companies.
Waiting Periods to Buy
Fannie Mae has established a series of waiting periods for borrowers depending on the type of "derogatory credit event" they've experienced. These are the guidelines as of 2019:
- Buying after a foreclosure: Seven years
- Buying after a foreclosure with extenuating circumstances: Three years
- Buying after a deed-in-lieu of foreclosure: Four years
- Buying after a deed-in-lieu of foreclosure with extenuating circumstances: Two years
- Buying after a short sale: Four years
- Buying after a Chapter 7 bankruptcy: Four years
- Buying after a Chapter 13 bankruptcy: Two years from the discharge date or four years after the dismissal date
In addition to the waiting period, some loans require a minimum 10% down payment and a minimum FICO score. The home you purchase must be your principal residence, not a rental property or a vacation home.
Fannie Mae defines extenuating circumstances as "nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations." This might include job loss, divorce, illness, or the death of a wage earner.
Waiting periods can be drastically shortened if there are extenuating circumstances, but you'll need documentation to prove the event. Being unable to afford an interest rate increase on your adjustable-rate mortgage is not considered a circumstance beyond your control.
Other Loan Programs
FHA loans have less stringent waiting periods, three years for buying after foreclosures, short sales, or deeds in lieu of foreclosure, and one to two years for bankruptcies. The FHA will waive the waiting period and allow you to borrow immediately in some short sale situations if you weren't in default on your mortgage and you had at least one year of timely payments.
These government-backed mortgages tend to be more expensive, however, with higher interest rates and the requirement that you carry mortgage insurance.
A few loans completed through the HAFA program might allow a short sale to be reported as simply paid in full when a default hasn't been recorded. This can make it relatively easy to buy another home.
Some private banks will make portfolio loans the day after a short sale has been completed if borrowers qualify.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.