Tips to Buy With a Short Sale On Your Record

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Buying another house after a short sale can be tricky but not impossible. © Big Stock Photo

When you're a short sale seller, you're often not thinking about buying a house after a short sale. Sellers have sworn to me up and down after closing a short sale that they will never, not in a million years, ever again think about buying a house after a short sale. Partly that's because going through a short sale can be very traumatic. It's not just the length of time it takes and the obnoxious lender demands, it's also ultimately facing the fact that a seller is losing her home.

All of those long-term dreams and plans, poof, gone. It's painful and heartbreaking for many people -- which is why it's often easier, although generally not suggested nor preferred, to simply walk away.

Yet, after the short sale closes, a strange thing seems to happen to many sellers. The weight they felt that was holding them down -- suppressing energy and squeezing the very life out of them -- has suddenly lifted, and they often are a bit shocked about feeling this huge relief. They weren't prepared to feel better about the short sale, so the feeling is astonishing. Short sale sellers are often plagued with guilt and dealing with so much stress to start with that many cannot fully realize the enormity of the pain until it stops hurting.

Now, unless these sellers have a rich uncle somewhere, they will probably become renters for a while after a short sale. If a person who once owned a home suddenly finds herself and her family in a position to only rent, it's not always an easy transition to view oneself as a tenant instead of a homeowner.

Some find they yearn to buy a house after a short sale almost immediately. For others, the urge for home ownership generally returns when their finances are back in order: they have saved a little bit of money for a down payment, and life feels secure once again.

Sooner or later, almost every person who has had a short sale in the past will most likely feel the calling to buy another house.

So, when a seller tells me that home ownership is out of the question forever, I don't argue. Instead, I try to show empathy, even though I suspect their belief will dissipate and change course over time.

Your First Step to Buy a House After a Short Sale

It goes without saying that after the short sale, a person needs to continue to maintain impeccable credit. This means paying all bills on time and paying down debt. In a perfect world, a person would not have any debt whatsoever, but that is not the world in which most of live. I think back to my childhood and how the mail order company, Fingerhut, taught my mother -- and many housewives of the 1950s like her -- that just 6 equal installments could deliver delightful gifts to our doorstep. It's really no different today. Except today it will be the Amazon drones bringing us stuff.

Don't incur new debt unless it's an absolute emergency. Keep your old credit cards and pay them off. One little known way to almost instantly boost your credit score is to pay a bill before the invoice date. Before the invoice is generated.

You can pull a credit report for free from the only true place online at annualcreditreport.com. Don't get lured into second-rate websites that will charge you or tempt you with a low rate to see your FICO score.

You don't need to look at your FICO score because your mortgage lender will get a different score than any score you could obtain. They use different software. Instead, focus on your credit report.

If you see discrepancies on your credit report, dispute them in writing. Don't call the credit company, write a letter and keep a paper trail of your correspondence, especially any emails. Document your efforts and you should be able to remove derogatory credit that is on your report by mistake.

Your Second Step to Buy a House After a Short Sale

After your credit report is as clean and accurate as you can make it, then make an appointment with a local banker or mortgage broker to discuss your financial situation. Fill out a loan application, just don't call some guy from your mobile while eating tacos at lunch and ask him for present-day rates.

You need a personal appointment with a professional who will focus on your particular situation.

Most reputable lenders who work with borrowers with short sales in the past will consider sending your file to an underwriter for approval before issuing a preapproval letter. This is your absolute best bet to be assured that you can buy another home after a short sale because the only person on the face of the planet who can give you that assurance is not your mortgage broker, and it is not your real estate agent, it is the underwriter. With underwriter approval, it means all you need to do is find the property, and your loan should sail through.

Your Third Step to Buy a House After a Short Sale

Hire a real estate agent to be your buyer's agent. Don't try to talk to only listing agents and hope they will get you a better deal because they won't. It's a fallacy. Ask your agent to send you houses for sale directly from that agent's source, which is most likely a MLS.

Until laws change, buyers cannot access listings directly on MLS unless an agent sends those listings to them. Buyers think they can find every house online but they cannot. They will never get as much detailed information from an independent website as the data that is available through MLS, unless the MLS stops charging brokers and agents for this data. That's likely to happen about the time we get hover cars.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.