I’ve written on this subject before but I want to be more thorough this time. There have been too many articles put out lately that discourage people from contemplating a home purchase after doing a short sale. These articles express cynicism about home sellers’ financial habits and cynicism from Realtors as well. Most Realtors doing short sales know how to cover the bases for their client to make sure they’re in a good position to buy a home down the road. Further, in my area (Saint Paul, MN), nearly 39% of homeowners are upside down on their home. Only a small minority of these homeowners who would do a short sale on their home have destroyed credit. All too often unfortunately, they are told that they won’t be able to buy a new home for 2-7 years and, consequently, they let their credit go. This assumption of a long waiting period is not true and serves as harmful information to the homeowner doing a short sale.

Prior to December 16th of 2009 there was no FHA rule prohibiting homeowners who had a recent short sale from purchasing a home. Few took advantage of this because the lending industry was wary and wanted clarification from HUD on whether this was OK or not. On December 16th of 2009, HUD gave that clarity with Mortgagee Letter 09-52 which allows a people to buy a home after a short sale if “they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.” One caveat to this; FHA will not allow the new loan if the borrower did a short sale “simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.” When this rule came out, many thought that despite the fact that HUD allowed for a purchase subsequent to a short sale, no lenders would go along with it. They were wrong. Most lenders have adopted the rule as outlined in the mortgagee letter without additional underwriting guideline overlays. 

So that’s great for people who didn’t have late payments on mortgages or installment debt in the 12 months preceding the closing of the short sale but even if you have had late payments you may not even need to wait the 3 years FHA requires now that the Back to Work extenuating circumstance has been outlined.  In this qualifying case, the waiting period is only 1 year even if there were late payments.  For more on this, see my article about the FHA Back to Work program.

But this did not deter the naysayers. They would assert that even if HUD and lender guidelines allow for it, the IRS would kill the deal. It’s true that a short sale can create a taxable event. Because I am not a CPA or a tax lawyer, I will refer you to IRS Publication 4681 which explains in detail what the tax consequences can be after a short sale. There are handy scenarios, examples and useful information of every kind. So a buyer who has a tax lien can’t buy a new home, right? Wrong.

According to the FHA mortgage credit analysis handbook 4155.1 REV-5, 2-5 (B), a homebuyer with a tax lien is eligible for a FHA loan when, “the delinquent account is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing. Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage. If any regular payments are to be made, they must be included in the qualifying ratios.” It goes onto read, “”Since the IRS routinely takes a second lien position without the necessity of independent documentation, eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS tax liens remaining on the property unless the lender has information that the IRS has demanded a first-lien position.” That’s right. The lien can be left unpaid and it will automatically subordinate to the new FHA loan without the need of additional paperwork.

But the naysayers are not yet done. They will say, “Oh but with a short sale and a tax lien, their credit will be obliterated. There’s just no way they’ll qualify.” All a borrower needs is a 620 middle credit score. Some lenders (I’m not one of them), will even go lower. I’m going to address this objection with an anecdote (and really, this is not an isolated incident – sadly, it happens more common than you think.) I recently had an applicant pull a 622 middle score. On this credit report was a judgment and 19 collections. That’s it. This person had defaulted on every extension of credit ever given and still pulled a 622. Not that an IRS tax lien and short sale aren’t damaging but, come on, they far from rule anything out.

My point in writing this is to serve as a reminder that in a lot of areas nearly two fifths or more of us are upside down, may want to move and are not deadbeats. Also, I wanted to get this out there to provide the facts to dispel the myth that homeowners who do a short sale are only welcome to take a timeout from homeownership. This is not their only choice. They’re welcome to continuing homeownership in the same way as the rest of us, . . . . Conditionally. :)

For more on your specific situation, contact me directly using the contact information below or use the comment box at the bottom and I’ll reply shortly.

Here are some related articles on this topic that I think you might find interesting:

  1. Short Sales Do Not Require a Delinquent Mortgage
  2. Waiting Periods After Major Credit Events
  3. What are Extenuating Circumstances?
  4. Why Borrowers Buying after a Short Sale are a Good Credit Risk
  5. Buying a Home After a Short Sale Using VA Financing
  6. FHA’s 1 Year Waiting Period Using the Back to Work Program

Here are some comprehensive “waiting periods” associated with buying after a short sale:

  • If you had no late payments on your installment debt and mortgage debt in the 12 months preceding your short sale, you can likely buy right now using FHA or VA financing.
  • If there were late payments and you are VA eligible and can document extenuating circumstances, it would be a 1 year waiting period.
  • If there were late payments and you are eligible under the Back to Work program for FHA, it would be a 1 year waiting period
  • If there were late payments and you aren’t VA eligible you either need a 2 year waiting period and 20 percent down or a 2 year waiting period, 10 percent down, the ability to document extenuating circumstances and your loan gets an automated underwriting approval from Fannie Mae.
  • If there were late payments and none of the preceding scenarios work, FHA will work after 3 years.
  • If there were late payments and you are VA eligible but couldn’t document extenuating circumstances, you could buy after 3 years so long as the previous mortgage that settled for less than the amount due wasn’t a VA mortgage because if it was, the VA eligibility would need to be restored by paying back the deficiency.
  • If there were late payments and none of the preceding scenarios are workable, then the availability of conventional financing is restored after 4 years.

For more on your specific situation, contact me directly or comment with your situation below.

Charles Dailey - iLoan - NMLS ID# 79048 – Branch Manager, Loan Officer, Certified Military Housing Specialist – 612.234.7283


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264 Responses to “Buying a Home after a Short Sale – Don’t Believe the Naysayers”

  • Jackie from Concord, CA, United States:

    My husband was laid off from his job in 2009 and unemployment ran out 2 years after that. During that time we struggled financially like anyone would. I worked with our credit card companies and reached settlement agreements with most of them. I was employed (and remain employed) the entire time. After unemployment rat out we struggled with making the mortgage payments. Finally, in Oct 2011 we stopped paying. I tried to work out a payment plan with the lender but the best they would do was $150 a month less which wasn’t going to help. We ended up moving from CA to PA and sharing a home and expenses with our daughter. We listed our house in CA for sale in Sept 2012 and sold it via short sale in Jan 2013. Now we are ready to look for a home of our own here in PA. I’ve tried a couple of lenders but they all say it’s a 3 year waiting period. I’m getting so frustrated. I make a very good salary and, even though we don’t have much saved because of medical bills, can make at least a $10,000 down payment. No one will even try to pre-approve us. Maybe it would be better if I made less money. I want a house of our own, not to continue renting one and making payments for our landlord.

    • Jackie from Concord, CA, United States:

      ugh .. my browser says I am in CA which is incorrect. I am in PA just outside Philly.

    • They would be right about the three years regarding the FHA waiting period because it would be too difficult to draw a straight line between the job loss and the closing of the short sale for the FHA Back to Work program’s 1 year waiting period. However, a documentable and involuntary job loss would qualify under the extenuating circumstances underwriting rules and therefore, the fastest route to homeownership would be the Fannie Mae 2 year waiting period with a 10% down payment. I’d set your clock to that timeline if I were you.

      • Jackie from Willow Grove, PA, United States:

        Thanks for the response, I appreciate the insight and the comments. Too bad the idiots I spoke to didn’t even have all the information I gave here and still said I couldn’t qualify for anything. Guess I will wait….

  • Molly from Lakeville, MN, United States:

    My husband and I completed a short sale of our townhouse in Farmington, MN in February 2012. The short sale was not due to a financial hardship, but just the fact that we owed much more for the property than what it was worth, and our growing family was getting too big to fit the space of the town house. Luckily the banks came to an agreement and accepted the short sale, with a large sum of money from us as well.
    We were told that we would be able to purchase another home immediately since we had not missed any payments on our mortgage ever. However, we were later told, that since we were planning to purchase a larger house in a nearby neighborhood, that we could not qualify for an FHA loan until after 3 years.
    I am wondering now, after 2 years, if we could qualify for a conventional loan with 20% down? With the prices of homes quickly rising, and the need for mortgage insurance after a short sale with less than 20% down, it seems like it would make sense for us.
    I am just wondering if that is something worth looking into?

    • It’s definitely worth looking into. Using conventional financing after 2 years doesn’t confine you to buying a home that isn’t “similar or superior.” You can buy whatever you want. You’re close to my office. I’ll shoot you an email.

  • Jessica from Hillsboro, MO, United States:

    Jessica from ,MO, United States
    My husband and I have been debating whether we should, short sale or just walk away from our home. We purchased our home in 2007 and have a good payment history, we have 4 small children now. Our mortgage is very much underwater, and we where just newlywed kids when we purchased our home and we opted out of the inspection. Which was a huge mistake, our house would never have passed, the crawl space is full of black mold, the electric is wired very wrong over 50% of the house is on one line. No of these things were obvious when we bought the house because it had just been remodeled and it looked beautiful and was in our price range. So we jumped on it now 5 years later we a have dumped over $10,000 in to a home that we barrowed 109,000 on and now our house is only worth 60,000( I had a real estate agent get me a quote so we could list it). Then we paid for an inspection to see if it would pass and it failed, they estimated another $10,000 to fix the problems. With this inspection we also learned that our crawl spce is falling in slowly, so my husband wants to just walk away and rent for 18 months then try to buy another house. We have had several people we know do this but I just can understand how this doesn’t effect them for longer than 18month. Help me??

  • Deanne from Madison, WI, United States:

    I’m so frustrated and wish that I could find some help, that I could find a lender to work with me. I did a short sale in February 2013; I was told by a real estate agent at the start of the process that I would be able to buy again without any huge problems or obstacles- – perhaps right away, but definitely after one year. The reason I chose to do the short sale was not because of a complete loss of income. I had a motorcycle wreck on 2009 that resulted in wildly high medical bills to me. All of those providers from one week in the hospital (which was out of network for my health insurance so insurance coverage was limited) did each expect monthly payments and the result was that I ran up nearly $30,000 in credit card debts. I definitely wasn’t in a position to take on a second job during that time. And my house was WAY underwater from the decline of the market over the years since I had purchased in 2007, so there was no chance of selling it because what I owed was $50,000 more than what I could get for it. The mortgage company that it was with was completely uninterested in speaking with me about refinance (it was at a MUCH higher rate from that 2007 purchase than the rates that were to be had in 2010) — yes, I did try – and this was me trying to refinance that full amount owed despite the declined market value but just to give me a lower rate & lower payment to help me survive and slowly dig out. They wouldn’t do it, not interested. I went to another lender and had it all set to go with a good rate on a 15 year mortgage (vs the 30 year it was at the time) and the payment for the shorter term still would’ve been, I think it was $250-300 less per month. BUT, it had PMI attached to it and the lender it was with blocked it from refinance saying that the PMI holder wouldn’t allow it to move to another lender (I don’t know what the precedence or legality is around this, but the loan officer at the lender who was trying to refinance it seemed equally surprised – she hadn’t had this happen before). So, that meant no chance of refinancing and drowning in credit card debt. I chose the short sale because the real estate agent I met assured me I’d be able to get into a mortgage again within a year; that I’d be able to have a chance to dig myself out, to get the chance I needed to pay off everything else and start to build again… turns out it was a lie/misinformation. He also informed me that I needed to NOT pay the mortgage because the lender would never approve a short sale as long as they’re still getting money from me, which totally makes sense. During the course of the short sale time period which dragged on for more than a year waiting for the lender to say ‘go’, I managed to pay off nearly all of my credit card debt because I wasn’t paying that high mortgage payment. Over the year since it closed, I’ve paid off the rest of the credit card debt, saved $9,000 so far for down payment. Now, a year later, I’m stuck. I have a good credit score, higher than average income, 5-10% down, and I cannot do anything because it turns out I’d need 20% down. I feel screwed every which way. I’m so disappointed by the whole thing. I’ve got money (in a good income, reasonable savings toward down payment, good credit score) but I can’t do anything. I just wish there was some sort of savior out there willing to give me a chance. It’s so deflating and demoralizing to work at it to dig out & build back up just to be shot down again.

  • Marioyn from Rosedale, MD, United States:

    Hi Charles,
    I just wanted to thank you because your article about buying a home right after a short sale paved the way for me not to be discouraged.We short saled our home in Feb 2013 ( via HAFA) with no late or missed payments.Me and my husbands credit scores were almost 800 at that time and we were able to buy a house( new – we had it i built) in the same zip code as our old home ( Baltimore MD),our builder was Ryan homes and they recommended a lender who did our loan.The reason for the short sale was me and my sister wanted to separate ways(the previous home was both in our names).Chase accepted the short sae application and I took 3 months for it to be processed.I h d to write a letter to the new lender why I wanted to buy a house withi thy isang zip code and my reason was that so that my kids will not have to transfer schools.Luckily the lender agreed and thet gave us 3.5% interest rate( we closed last May 2013) for 30 years-FHA loan paid some points,down payment,and all closing costs.We did not mind at al because we got what we wanted-A new house,in the smell zip code( 1 mile away from our only house).The price was even higher than what we’ve sold our short saled home but the sq.uare footage was a little bit less.So to all your readers,don’t get discouraged whey you have to do a short salts,just keep on researching on ways to buy a home right away.By the way,our credit scores did drop by about 100 points but the lender expected that al
    Ready but even if it dropped we were still within the FHA required score.I hope this helps others not to loose hope.If not for your article,I would not have pursued buying right away.Again thank you so much and God Bless!

  • Melissa from Santa Maria, CA, United States:

    Hi there! Great information and thank you for providing this. We short sold our home in CA in 10/2010 through a cooperative short sale program with our lender. No late payments and we have no outstanding payments now that the house is sold. We have since relocated to an area 350 miles away for my husband’s job. We are trying to purchase a home through FHA but are being asked to provide documentation that we had a 20% drop of income prior to the short sale. Although my husband had a drop in income it is at only 15%. Our real reason for the short sale was the impending ARM that would balloon our payments to something unaffordable and the bank’s inability to refi us into a 30 year conventional loan (our home value was 45% less than we paid.) We did this a full year before the ARM adjusted due to uncertainty that the short sale program would extend. It wasn’t something we took lightly and we walked away from $250K that we had put into the down payment on the home. My question is, not being able to provide proof of a 20% loss of income, are we now unable to qualify for the FHA loan? Thank you for any assistance!

    • I can’t understand why they’d possibly care whether or not your income dropped by 20% or more. That is a guideline that pertains to the FHA Back to Work program. The FHA Back to Work program applies if (1) you had late payments preceding the closing on your short sale and (2) you wish to purchase between 1 and 3 years after the closing of your short sale. If you closed on 10/10, it’s already been 3 years for you so you don’t need the Back to Work program. You just need to meet the basic eligibility for FHA. Remember, a short sale is a consensual act. Your previous lender agreed with your hardship or they wouldn’t have agreed to do a short sale. Therefore, why would someone need a letter of explanation justifying your hardship (again) if you’re buying 3 or more years after the closing of your short sale? It looks like you might be from CA and if you are, I’m licensed there and would be happy to help: http://iloanhomemortgage.com/about-iloan/charles-d-dailey/charles-dailey-welcome-letter/

      • Melissa from Santa Maria, CA, United States:

        I have one critical typo! We short sold in 10/2012 (my daughter is born in 10/2010 and a much more memorable moment). So we are just over a year out from the short sale. Apologies for the typo! So is Back to work our only option here? Thank you!

  • Andrew from United States:

    Hi Charles, we sold our home in Plainfield, IL back in Sept. 2013 through short sale. After my wife gave birth to our first daughter back in Dec 2012, she was forced to become part time and financially strained due to the baby’s physical condition. We have no family in IL to support us so we decided to move back to CA (where we originally from 11 years ago) after the house was sold. Upon advise from our realtor, we stopped making payments on March 2013 until the house was sold on Sept 2013. Now that we are here in CA, we both have full-time jobs again and with family to support, we would like to be back on track and purchase a home. My question is: based on your information above, can we qualify for a loan under extenuating circumstances? Also, the loan on the house we sold in IL was only under my wife’s name, and I remained untouched. Am I affected on the short sale of our home since the previous loan was only under her name? Will we get approved if we try to obtain a FHA loan together now to increase our chances? We have enough savings to make 20% downpayment and still have savings after that.

    Thank you Charles for your information here in your website. Very valuable and informative for everybody to understand!

  • Leonor Del Toro from United States:

    Hi Charles,
    My husband purchased a home in CA in 2006.At the time we were not married, the home was solely under his name. The house was put up for short sale in 2008. Since then my husband has received collection bills for 50K which was the difference of amount in which the house was sold. It has been 7 years now. My husband never filed for bankruptcy. We are trying to purchase a home now and I would like to know if that amount is still pending on his credit score and will it affect us in trying to purchase a new home.

  • Kathy from Lisle, IL, United States:

    Hi Charles,

    Thank you for sharing this great and informative article with us (the people who experienced a short sale).

    Here is my story: my husband and I short sold our home (we ended up selling it for $60 K less) in November, 2013 (closing month). We had to short sale because of my husband loosing his job (which meant more than 50% of our income was lost). We are currently living in IL and the house we short sold was out of state. So to summarize it, the hardship was that we end up having to pay mortgage and rent (for the apartment in IL) at the same time while my husband lost his job.

    Now, we would like to buy a home in the 200K. My husband is going to school so we only have one income of about $60K/ yr. However, we do have savings and we can afford to put 20% down on a 200K mortgage. We realize that we lost VA eligibility because of the short sale.

    What are our chances of getting a new mortgage less than 1 yr from the short sale? – our scores are in the low 700′s and we only missed one mortgage payment for the month when the bank approved the short sale(so we short sold in November – the last time we made a mortgage payment was in October – so we missed the November payment). We have no missed bills, or mortgage payments in the past.

    Thank you for your help.

  • Becca from Sahuarita, AZ, United States:

    My husband and I bought our first home in 2007 and we bought in a rural area so had the USDA backing. We never made a single late payment and have credit scores in the 700′s. My husband was set to get a job transfer to another state so we had to short sale our home because we live in S.AZ and were $72000 under. We had a countrywide loan that was sold to Bank of America and they granted us the short sale with not a single late payment. We have checked are credit report and the sale was reported with no late payments but paid in agreed amount (short sale). The company my husband works for decided not to send him to the other state but last minute decided to keep him here but only after we had already sold our home. We have documentation for all of this. We have been renting for 18 months and still have impecable credit with no late payments EVER. We would like to get a USDA home loan, with a new build in a rural area. What are our options? Thanks So Much!

    • I’m not 100% sure of this but given that the previous mortgage was insured by USDA and they would have paid the insurance claim for the deficiency on the previous mortgage, my guess is that they wouldn’t be ready to do another one. That would not rule out FHA though. You sound like a good FHA candidate. The trick with that would be that they would not allow you to buy a “similar or superior home within a reasonable commuting distance” from the property previously sold short. I’m guessing that if you’re doing new construction, that wouldn’t quite be the case. VA has the same “similar or superior” rule. FHA Back to Work does not but there doesn’t seem to be a job loss feature so while I do think you could get a mortgage, I think it would have to be secured by a home that was a step down, so to speak.

    • Becca from Sahuarita, AZ, United States:

      Hey Charles,
      Thank you so much. We went through a lender and were pre approved to build a home and had our information run through GUS, which is the USDA approval system for mortgage applicants and it said we were APPROVED. I talked with a USDA person in Phoenix and they said we just needed to find a lender that would give us a loan. The lender we wanted would not even submit it to USDA because of the previous USDA backing on our first loan, that we received 7 yrs. ago that resulted in a short sale 18 months ago. They said they would however submit it to FHA. My question is if we received a pre approval through GUS, why wouldn’t they submit it to USDA? Are we basically stuck waiting 3 yrs. to get a USDA home loan even though we NEVER had a single late payment?
      Thanks so Much!!!

      • Automated underwriting approvals be they from Fannie Mae, Freddie Mac or GUS are not final decisions. They make a preliminary decision subject to review. They’re good to have because they add certainty but not absolute certainty. I don’t think this would make it through actual underwriting for USDA. I also have my doubts about FHA since you’re doing new construction and you’ll need to meet the similar or superior test outlined in the text and video above. Usually, new construction is a no go.

  • A Campbell from Meridian, ID, United States:

    Hi Charles,
    This is the best information I have found regarding buying after a short sale, so thank you! We short sold our home and closed last February 2013. The process took 10 months. The year before that (about 6 months prior to our move) my husband was laid off. He was able to find a new job after a month of searching but unfortunately the new job required a 1.5 hour commute, much more stress, and was at a very unstable company. So we kept looking. A few months later we both found great new jobs in another state. We tried to work with our lender but they wouldn’t even discuss it. Our lawyer said the lender wouldn’t talk with us until we defaulted on our loan. It was probably the hardest thing we have had to do; we have never not paid something we owed… So we are almost to our 1 year mark from the short sale. We have spent the last year renting and paying off debt. Our credit scores are now just above 700 and our annual income is $175000. We can save a 10% down payment by our two year mark but not the 20% needed for an FHA loan. I am not sure that our situation would qualify for extenuating circumstances? We just received notice that the home that we are renting will be sold next year so we are trying to figure out our best course of action at this point. We appreciate any direction you can give us!

  • Lisa from Woodside, NY, United States:

    Hi Charles,
    We had a VA loan at the time my husband’s company agreed to an out of state job transfer. Our house was on the market for 7 months along with 5 other homes on our street. The market continuously dropped over that period. We rented an apartment in our new location and the day the moving truck arrived my husband’s company announced a division shut down. We had zero income, a huge mortgage payment, rent and moving costs. We were current on payments but the market fell so much that the we received one month later was $250k less than what we owed. The bank and the VA told us we needed to stop making payments so we did at the same time we presented the short sake offer on the house. The transaction took 5 months and the bank settlement letter stated paid in full with no mention of a short sale. We have had zero impact on our credit (we both have 780 scores). The only proof of a short sale is our HUD document showed a sale $250k less than what was stated on previous credit reports. The short sake closed April 2013. We have been renting for 14 months now and would like to buy a home. We were preapproved by two banks already but fear that the past will interfere once we formalize the application on a contract. We are hoping for an FHA loan.
    Are we in the clear? Do we fall into the 1-year waiting period catagory? Our preapproval was for a 3.5% down FHA . Is that possible?

  • Hi Charles, I am a licensed agent in Atlanta and Wisconsin. I am currently working with a GA couple that were recently approved to complete a short sale through Chase bank. Because the wife has to drive over 100 miles daily to work is reason enough for HUD to complete a short sale. The couple selling have a combined income, $120,000-$150,000. They are not late on any of there monthly house payments and have 700+ credit score. The husband purchased the home before he married in 06 for $195,000 through FHA. Chase banks appraisal and BPO came in at $173,000. They currently owe the bank $175-$179,000. After paying closing costs obviously they would not have enough money from the sale to complete a normal sale. The couple also has a estimated $20-$30,000 in there savings which they were going to use for a down payment to purchase there next home. To make a long story short I recently found out the sellers do not want to complete the short sale due to not finding the right home with the lower inventory situation on current homes available. So Charles it comes down to the sellers wanting to build a new construction home but thinking they will not be able to complete new construction transaction one year after a short sale. My guess would be to risky almost like gambling to complete a new construction transaction 1 year after a short sale, but then again maybe I missed something along the way? I was told by a lender awhile back after completing a short sale you will not see this negative mark on your credit for at least 4-6 months, sometimes longer. Another words I believe he was saying a person completing a short sale would be able to purchase a home with a conventional loan before showing up on the credit report. I feel that might not be the correct answer! Charles after viewing your website it seems you are quite knowledgeable within the short sale department and hopefully will be able to provide me with the correct answer. The seller might considering moving forward if there next move would be a possibility!

    Now this gets a bit tougher! Also the sellers decided they don’t want to sell there home due to most showings turning into a big fat headache! They have a baby, both work and are receiving many calls with buyers wanting to view there home. The home is currently listed at $179,000. There home is beautiful and well worth the amount we are asking, especially with a lower inventory! The big issue is the neighborhood! The home owner is adjacent to 2 of the worse homes in the entire neighborhood! The 2 adjacent homes have over grown yards with grass and plants and a very awful tired unkept exterior look along with a odd looking color. The neighborhood itself is not the most appealing or inviting neighborhood to enter to begin with. Because of this many times when the agent shows up with there interested buyer, the buyer decides not to waste there time to view the interior. I had a few buyers interested, but after thinking on it for a few days it seems the buyer is no longer interested. Obviously I need to reduce the asking price in order to sell which at that point will turn into a short sale. The sellers listing did expire the other day, which the sellers were happy campers because they did not have to be tortured with any further showings! I can not see anything positive with this by not moving forward with a short sale when in fact you would realize with enough common since the neighborhood will only look worse in a few years to impact the sellers more so. The day after there home expired I received a email from Chase stating that the sellers were finalized with approval and should reduce price to $173,000 and try to get our best offer. I know for a fact there home would sell instantly if they reduced to $173,000. I really believe $169,000 is the magic number which I know the bank would approve. The seller has until this coming Tuesday to decide whether or not to move forward with the approved short sale. I have not discussed this with the sellers as of yet with Thanksgiving being tomorrow. Now that they are guaranteed to complete with a short sale I am thinking I need to look into this more seriously before they make a decision.

    Sorry this is so long though I felt it was important for you to know all facts. I did talk to the person assigned through Chase bank today which he is not understanding as well after working very hard to complete this complicated but yet simple short sale. I am frustrated knowing that there are at least 25+ homes matched to there criteria that could truly be a possibility with there next purchase. For some reason there minds are set on a new construction home. It would only make since I would think for the sellers to short sale there home and move to a much nicer neighborhood where you would be more certain the value would be higher in a few years! When in fact this time of year most sellers that have there home on the market there is a reason and can get a much better price then in the upcoming Spring. home where as in the Spring the values will really hit high. Also I strongly feel when most home owners sell this time of year there usually is a reason and are much more motivated then your normal seller. Also Charles the GA law states when completing a short sale you can not purchase for 2 years after. The only effect the seller would have with there credit score is not paying the last 30 days on there mortgage before closing on there home which is a requirement with HUD. I can not imagine that that would effect there score to badly, but not sure?

    Also Charles the home owners and I worked really hard to get to this point and seems ridiculous just to walk away from it all. More importantly I honestly believe that the home owners do not belong in this subdivision! They both have great jobs, work many hours with solid educations and heading in the right direction having there 1st child. They are intelligent people and maybe that is why I am having a hard time swallowing this! I know they would be making a huge mistake by not completing the short sale but obviously I am unable to convince them to do the right thing! Charles, I am extremely looking forward to any advice with this frustrating situation! If you could please kindly email a response to this potential short sale issue as soon as possible that would be appreciated 100%! The bank is giving the seller until this coming Tuesday December 3 to sign the ” Affidavit of arms length transaction “. I am completely grateful with any expert advice. Have a nice Thanksgiving! Thank-you Charles!

    Sincerely, Stacey

  • Linda Worrall from Palm Harbor, FL, United States:


    I just watched your video and found it interesting. I am in a strange situtation. I had a short sale on my home in August 2012 for a home we bought for $425,000. I also had a rental home about 2 miles from there where we have owned this home for 7 years or so. Not the same kind of home, 2 bd, 2 bath worth about $150,000 – we owe about $94,000. I have never missed a payment or have been late on this home, but since it was a rental our interest rate is 6.375. On the short sale, we do not have a judgement against us or anything, we were released free and clear due to job loss and the down market in florida the housing market took a dive. All I want to do, is bring down my interest rate from 6.375. to 4.0 or 4.5 whatever it is right now. No one will talk to me. My credit score, believe it or not was not effected by the short sale,, still in the 7′s but because of the short sale, i cannot do this. Any advice? besides waiting another 6 months to a year? Thanks, Linda

  • […] a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance – This is the same as the FHA […]

  • Rachelle from San Francisco, CA, United States:

    I was a co-signer for my parents’ home (in Pittsburg, CA) and we had to short sale due to my dad losing his sight, needing cataract surgery for both eyes and having to retire from his job. His income was slashed in half with SSi and his pension. We had to shortsale their house in Dec 2012. Meanwhile I have a home with my partner in SF, CA that we’ve lived in/owned since Dec 2011. After putting my parents’ home on the short-sale market in the early summer of 2012 and finalizing the sale the title was finally released and transferred to the new owner in late Dec 2012. My partner and I are currently in an FHA-backed loan paying PMI for our current home in SF. Property has appreciated to the point where we now have more than 25% equity in the home. We would like to refinance to get out of paying PMI (and possibly get a lower interest rate, right now we are at 3.75%). We are eligible for a VA-backed loan as well and would like to get into one for a shorter period, possibly 15-year, but we are currently weighing our options. We aren’t sure where to go from here. Any help or insight you can provide would be amazing.

  • Beth from Saint Paul, MN, United States:

    Hello, My husband and I completed a short sale on our home in May of 2012. Our hardship was due to medical issues my husband had that overloaded us with massive medical bills. He has since recovered and the hardship no longer exists. Our credit scores have also fully recovered from the short sale. We are interested in buying again but are not sure of our options. The back to work program is interesting but I cant tell if our reasons for hardship would qualify in that program, do you know if they would? If not, when we be able to buy again?

    • Under the FHA Back to Work Program, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control; the borrower has demonstrated full recovery from the event; and, the borrower has completed 1 hour of face to face HUD approved housing counseling. They key word here is “or.” The problem is that underwriters hate the word or. They like things to be crystal clear so having an actual job loss is the easiest way to get through underwriting on this program. If you had a documentable drop in household income of 20% for a period of 6 months or greater, there’s a reasonable chance you could get this through. In my opinion however, you’d have to prepare yourself for about 20-30% odds of it not working. Fortunately, you’d find out relatively quickly in the process. I see your near Saint Paul and my office is at University Ave and Raymond Ave in St. Paul. Feel free to schedule a time to come on by and we can map this out. I can be reached at 612.234.7283 and my Production Coordinator Katie can be reached at 612.916.8333.

      Also, you’ll want to read this: http://iloanhomemortgage.com/uncategorized/the-fha-1-year-waiting-period-after-short-sale-bankruptcy-or-foreclosure-back-to-work/.

      • Brooke from Brentwood, TN, United States:

        I just read the link on the Back to Work program. As far as I can tell, a
        Person who walked away from their debt (chapter 7), and had their bankruptcy discharged 12
        months or so ago may qualify. Whereas the person who honors their obligation and is in the process
        of paying back 100% of their obligation does not qualify, as the
        bankruptcy is not yet discharged. The person who walked away from their obligation
        is more credit worthy than the one who spends 3 years paying in full. What’s wrong with
        this picture? The system rewards those who walk away, ahead of those who repay. There is
        zero incentive for people to honor their obligations.

  • I’ve updated this post, the outlined waiting periods and related articles section to include the new 1 year waiting period for people who did have late payments on their mortgage but want to buy using FHA financing. It’s possible through a tough process that will be known as the Back to Work guideline or Back to Work Program. Here’s a direct link that outlines this program: http://iloanhomemortgage.com/uncategorized/the-fha-1-year-waiting-period-after-short-sale-bankruptcy-or-foreclosure-back-to-work/

  • For those of you following this post or comments to this post, I will be editing it with some new revisions to the guidelines for buying after a short sale using FHA financing. It’s great news!!!

  • Michael from Dacula, GA, United States:

    Really informative website! I am working with someone now trying to get my home sold. My house is not currently on the market mainly because the house is not worth the amount that I owe; since everyone has already foreclosed or short sale their homes in my neighborhood. HOw can I sell my home? I am current and have never been late on my mortgage payments. I have a Fannie mae or freddie mac loan. It is not FHA. I live in metro Atlanta, GA. There has to be a way out for people who would like to move and have been current on their payments.

  • Wendy Keiser from Chula Vista, CA, United States:

    I would like to know when we can buy a house again. We had a short sale which closed in Dec. 2011. We also had a bankruptcy which was discharged in August, 2011 (Chapter 7). We have since re-established our credit (it is close to 700 again). We have opened new credit cards and have been paying on them successfully and been maintaining low balances. We have opened two car loans as well. We also plan to put 20% down on our next home purchase. What would you say is our current waiting time?

    • Wendy,

      Underwriting go by the longer of the two applicable waiting periods and I think you’ll find this link helpful: http://iloanhomemortgage.com/uncategorized/waiting-periods/. With 20% down (in fact you might be able to do 10% down), AND if you can document extenuating circumstances, 2 years using Fannie Mae backed financing would be the shortest.

      I am assuming that there were late payments on the mortgage in the 12 months preceding the closing on the short sale. If there weren’t, you could use FHA 12 months from the discharge date of the bankruptcy. FHA would require 3.5% down. This would also be true of VA financing if you or a veteran spouse were eligible for VA financing. VA would not require a down payment.

      So if there were late payments, you can document Extenuating Circumstances, then Jan of 2014 is the magic month. If there weren’t late payments then next month is your magic month. :)

      I’m licensed in CA if you need help.

  • Jaime from Hanley Falls, MN, United States:

    We have a situation that is very confusing. We filed a chapter 13 bankruptcy 3 years ago and included our home in our bankruptcy. It was discharged on 1/13. The home was being paid in our chapter 13 payments, but after the bankruptcy discharge we were no longer financially responsible for the home. Our mortgage company, Chase mortgage would not accept any payments after our discharge and only offered us a shot sale or a foreclosure. So we currently have the home on the market for a short sale. I contacted the housing authority about FHA guidelines for the bankruptcy. They said that it does not matter the outcome of the home because it was discharged and that their guidelines say we can get a mortgage 1 year after discharge. However, I am being told by mortgage brokers so many different things. They say no, that we have to wait 2 years after the sale on a short sale with the home. Others have said that we will get approved sooner if we let it foreclose and not short sale it. I need some definitive answers! This is he most frustrating thing I have ever been through. I need help.

    • Jaime,

      OK. I’ve had a lot of Q&A on this post over the last 2 years but this one is fascinating.

      Your waiting period on the Chapter 13 is 1 year if you’re still in the 13 plan. So that’s true. My first question would be since usually 13 plans are 5 years, how are you discharged already? I would assume you’d still be in the plan. Not that it would matter because you can still buy a home while in chapter 13 as long as you get permission from the trustee (I think that’s still Jasmine Keller).

      The only reason it would matter if you’re in the 13 still or not is that if your mortgage is included in the chapter 13 bankruptcy plan, a portion of the payment would go to Chase and that would be treated as current. If you’re out of the plan and they wouldn’t accept the payments and this has gone on for more than 30 days, an underwriter would treat that as a 30 day late. If it’s been two months, it would be a 60 day late; and so on. Having this late payment prior to a short sale would trigger the 3 years waiting period for buying with FHA or VA financing and a two year waiting period for Fannie Mae financing (but you’d need 20% down or 10% down if you can document extenuating circumstances AND get an automated underwriting approval).

      I think the distinction here is the difference between the Note you sign at a mortgage closing (which is the promise to repay) and the Mortgage (the instrument which secures the debt against the property). In a bankruptcy, you’re expunging the Note but usually, the mortgage remains. This is why they can still foreclose.

      It sounds like you’re somehow discharged so this may not be good news but if you wanted definitive answers, . . . you got em.

  • Rachel from Rockford, MN, United States:

    We are thinking about selling our house and moving to a suburb closer to the twin cities (MN). My husband and I are commuters with jobs out there and the hour drive is really draining us especially with a family with small children. We owe more on our home than what it’s really worth and looks like our only option would be to do a short sale since we don’t have enough money to pay the difference. We have not missed or been late on any of our payments now for over a year and also have good credit. Can we qualify for a short sale with chase and would we be able to get approved for another loan right away as we don’t want to have to wait or rent? What are our options here in MN?

    • The two options for buying right away that you might be eligible for would be VA (if you’re VA eligible as a veteran or foreign service worker) or FHA (as outlined in this article). The only hard stop preventing FHA from working would be if your current loan is insured by FHA. The reason for this is that they have a policy against approving short sales without at least a 30 day late payment. They’re one of the last to have this policy. Assuming that’s not the case, I like your chances. Especially if you’re buying in the central twin cities, eastern suburbs or southern suburbs because that’s would likely be considered “outside of a reasonable commuting distance” from Buffalo, MN. A lot of this calculation will rely on the location of your place of employment too.
      You’re pretty close to me and in my home state so I’d be happy to help with this. I’ll set you up with a complimentary Scouting Report account. To set up search criteria that would work for you AND for FHA, I’d have to walk you through it over the phone.

  • Dan from Saint Peters, MO, United States:


    My Short Sale was completed in Sept 2012.

    My Current Score is above 700 There was no lates reported on my home loan or any loans on my report.

    We had to short sale because of extenuating circumstances – Divorce.

    How do I go about getting another loan?
    Im in Missouri Do you know anybody?

  • Kelley from Eugene, OR, United States:

    Today we got our pre approval letter for a new home loan !! An hour later we got an email from our Mortgage company saying our short sale has been denied (after they counter offered and the buyer accepted) because of unacceptable hardship. According to them, it’s because we have never missed a house payment. My husband’s income dropped $60,000, we have sold everythin we can, borrowed from our retirement and now have a large credit card debt just to stay afloat. They say I can call with questions? We’ve done everything right and they would rather we just stop making payments and foreclose? I’m not sure how to respond to them. Any idea’s on how to get them to see our hardship?

  • Galina from Mundelein, IL, United States:

    Hi Charles, My friend got divorsed and because her husband didn’t want to make an effort of selling a house they had to do a short sale (affecting HE loan). It’s been 2 years now and she would really like to purchase her own house, but everybody keeps telling her that she can’t do it and nobody will give her a mortgage even so she is looking to put down 20% and also her credit score is above 700. She was never delinquent at any of her loans (not sure about that mortgage as she could afford to pay by herself). Would you be able to give us an advise of how to approach and where to go to get a mortgage? Should she call big banks and set up appointments with them or should she go through small banks? The broaker who she worked with told her that nobody can help her untill like 4 years after her short sale.. Please! Any information would be very appreciated. Thank you so much! Galina

    • It looks like you’re in IL. I just emailed you the contact information for someone in IL that should be able to help you.

    • rosie from Alexandria, VA, United States:

      Every lender turned us down to buy a house because we had a short sale in Feb 2011 and one in June 2012, (trying to liquidate our house and an underwater rental.) We thought we had NO chance, but a small local bank that does in-house loans approved our house loan with our credit scores above 650. We’re just waiting for the appraisal on the house and will hopefull close in 3 weeks. We had to pay 10% down and get a little higher interest rate (4.25 on a 3 year ARM) but it beats the heck out of renting. Look for a local bank or credit union and ask about in -house loans! :)

      • That’s awesome Rosie!!! You should start looking into a VA refi on that loan as early as late this year. You have to have 12 consecutive months with no late payments before VA eligibility. That should get rid of that ARM for you.

      • Galina from Mundelein, IL, United States:

        Thank you! This is what I was actually thinking too – if big banks would not offer mortgage she will go to local banks.. I just didn’t have a clue that with so many people loosing houses it’s so hard to get a mortgage even after 2 years and great credit score… Thank you!

  • Molly from MN from Saint Paul, MN, United States:

    We did a short sale on our townhouse a little over a year ago. We were never late on any of our payments and we were told we would be able to get an FHA loan immediately after the short sale appeared on our credit report. When we appllied for the short sale this past fall, we were declined, even though our credit score was high enough. We were declined based on the fact that we were trying to purchase a superior property (although not a short sale or foreclosure). I am wondering who decides if you are trying to take advantage of the market? We short sold our townhouse, because it was much too small for our family of 5 and we needed a larger house. A short sale was the only way we could financially get out.
    Do you think it would be possibly for us to get an FHA loan? My husband is leary of trying too many times, in fear of hurting our credit score with too many hard credit pulls.

    • Firstly, you don’t need to wait until the short sale hits your credit report before you buy. You can do it right away. Whoever told you that was misinformed. It appears that you’d be eligible to buy after a short sale but you probably can’t buy what you want to buy. If you are going to buy inside of the 3 years using a FHA insured loan the property can’t be similar or superior to the property previously sold short. What this means is that (A) it is not a higher form of collateral and/or (B) it’s not structurally superior the property previously sold short on balance.

      What do I mean by higher form of collateral? There is a hierarchy of housing in underwriting where one type is better than the other and so on. Here is that hierarchy from best to worst: single family house, townhome, condo, duplex, triples and finally four-plex. Taking a step from one of the higher forms to the lower forms works. Going the other way does not.

      What do I mean by structurally superior? I use a spreadsheet that takes into account all aspects of the previous property sold short (e.g. square footage, bedrooms, bathrooms, year of construction, type of construction, etc.) and compare the old property to the new one side by side in it. If, on balance, the new property is a structural downgrade then I’ll do the loan. If it’s a close call or if it’s not a downgrade, I won’t do the loan. That’s not a personal choice on my part, that’s just how FHA wants them done.

      The only way around this is if you are relocating over 100 miles away from your previous property. This figure of 100 miles is arbitrary and based on some geographical factors exceptions can be made down to 50 miles but only in rare instances. If however this relocation element applies, the “similar or superior” rule doesn’t apply.

  • Molly from MN from Saint Paul, MN, United States:

    We completed a short sale a little over a year ago. We were never late on any mortgage payments in the 6 years we owned the house. The reason for our short sale was not financial, but because our 2 bedroom townhouse was not large enough for our family of 5. We accepted the short sale offers from both of our mortgage companies and paid the amount they asked for immediately.
    We were told that after waiting long enough for the short sale to appear on our credit report, we’d be eligible for an FHA loan. About 4-5 months after the short sale, we applied for the FHA loan. Although our credit had taken a hit, it was still high enough to be approved. We were denied the FHA loan based on the fact that we were looking for a superior property (we never considered a short sale or foreclosure property, however). We were told we would have to wait 3 years for an FHA loan.
    I am just wondering if this is always the case. How do they determine if you are trying to take advantage of the declining market? That’s not our intention, we just want a larger house and there was not another way out of our townhouse (we took an $80,000 loss when we sold).
    Do you think it would be possible to get FHA approval? My husband is leary of trying too many banks, since he doesn’t want too many hard credit checks to bring down our score.

    • Firstly, you don’t need to wait until the short sale hits your credit report before you buy. You can do it right away. Whoever told you that was misinformed. It appears that you’d be eligible to buy after a short sale but you probably can’t buy what you want to buy. If you are going to buy inside of the 3 years using a FHA insured loan the property can’t be similar or superior to the property previously sold short. What this means is that (A) it is not a higher form of collateral and/or (B) it’s not structurally superior the property previously sold short on balance.

      What do I mean by higher form of collateral? There is a hierarchy of housing in underwriting where one type is better than the other and so on. Here is that hierarchy from best to worst: single family house, townhome, condo, duplex, triples and finally four-plex. Taking a step from one of the higher forms to the lower forms works. Going the other way does not.

      What do I mean by structurally superior? I use a spreadsheet that takes into account all aspects of the previous property sold short (e.g. square footage, bedrooms, bathrooms, year of construction, type of construction, etc.) and compare the old property to the new one side by side in it. If, on balance, the new property is a structural downgrade then I’ll do the loan. If it’s a close call or if it’s not a downgrade, I won’t do the loan. That’s not a personal choice on my part, that’s just how FHA wants them done.

      The only way around this is if you are relocating over 100 miles away from your previous property. This figure of 100 miles is arbitrary and based on some geographical factors exceptions can be made down to 50 miles but only in rare instances. If however this relocation element applies, the “similar or superior” rule doesn’t apply.

  • Tina B from Auburn Hills, MI, United States:


    I closed the short sale of my property on Aug 3rd, 2011. I only missed my last payment because I was told that I had to be at least 30 days late in order to be able to complete the short sale, however on my credit report it was not reported as being late. They reported the short sale as “settled for less than the full amount.” My credit score was over 750 prior to the short sale and dropped to about 680–but has since gone back up to just over 700. I was also told that I could not buy another home until at the very minimum- 2 years, but I contacted my bank and they pre-approved me for a conventional loan with 20% down. Now I have an offer that was accepted on a property just yesterday but I’m so worried that something is going to happen down the road and they tell me that I cannot buy the house afterall. I’m only 5 months away from the 24 month waiting period. Do you think I am good to go since they pre-approved me? I even discussed the short sale and expressed that I wanted to make SURE I was approved. Thoughts?

    • Did they pre-approve you for a Fannie Mae backed loan, Freddie Mac backed loan, FHA, VA, Rural Development or other type of loan?

      • Tina B from Westland, MI, United States:

        Yes, this pre-approval is Fannie Mae and I was also approved for FHA.

        • Yikes. Bad news then. Fannie Mae has a 2 year wait and 20% down is needed unless you can document extenuating circumstances and get an automated approval for 10% down. You should ask to see a copy of your Fannie Mae Automated Underwriting Findings showing an approve/eligible finding. If they can’t do that, I’d worry a great deal.

          • Tina B from Westland, MI, United States:

            You were right. After many conversations with my lender it looks like I have to wait until the 24 month mark after all. :( As I said before I was not late on any payments, but I closed my short sale on Aug 3rd- which some screwed me over as far as the HUD goes. I’m so bummed that my family and I have to wait 5 more months to buy a home.

            • Argh. I was hoping they had some kind of odd portfolio loan that I’d never heard of but oh well. . . Here’s an unsolicited tip for you going forward. While the waiting period is 24 months in your case, you’ll also need an automated approval using Fannie Mae’s Desktop Underwriting software. It’s artificial intelligence but in some ways it’s not super intelligent. On the 24th month, it doesn’t know if it’s been a full 24 months so usually it won’t approve the loan until there has been 25 months elapsed. So you might want to plan around 25 months. Secondly, MAKE DARN SURE that the loan that you sold short is reporting correctly to your credit bureau. By this I mean you should make sure that the mortgage doesn’t show “date reported” pas the month that you closed your sale. I run into this all the time and it’s a difficult problem to fix.

              • Tina B from Westland, MI, United States:

                I just pulled up my credit report and its showing DLA of 7/11 but last reported 10/11. Which one matters? Just my luck it’s the Last Reported date. If it is, how do I go about getting that changed? Do I dispute it with the credit bureaus or contact the actual lender my loan was through?

                • They both matter unfortunately. I usually do this for my clients but I’m not in MI so you’ll have to do these disputes yourself. Basically, you just want the last active and reported dates to match your short sale date. Here are the links you need:


                  Good luck Tina!

  • [...] a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance – This is the same as the FHA [...]

  • Ray Brown from Montgomery, AL, United States:

    We had a VA Loan for our home. We contacted Wells Fargo on multiple occasions to proceed with a short sale due me separating from the military. After 8 months of non-corporation with Wells Fargo our relator insisted to quite paying the mortgage payments because if you continue they will not entertain because they are receiving their monthly installment. We stopped. 9 months later we moved out and into a rental. 6 months later we completed a short sell on the home. We did NOT make payments on the home for 15 months. My question is; Is my VA Eligibility Revoked?


    • If you wanted to use a VA loan again vs. using FHA, you’d have to restore your edibility using form 26-1880. There may be a problem with this if there is any indebtedness to the federal government as a consequence of a claim on the VA fund from the short sale. Here’s the text from the VA manual:

      “…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”

      The place to start here is by submitting form 26-1880 and starting the restoration process.

  • Marilyn from Baltimore, MD, United States:

    Hi Charles,I have been following all the articles in your webpage.We just received a letter of approval for our HAFA short sale from Chase with no missed payments.I am anxious as to how they will report it to the 3 credit bureaus because the short sale specialist who handles our short sale said since it is HAFA,they are required to report it as code 13 or paid/account closed which she said should not affect our credit.However,I read in some blogs there was this lady who completed a short sale (HAFA)from Bank of America with no missed payments and her scores droped by over a hundred.they apparently reported it as zero balance/paid but they put a comment – settlement made for a conventional loan.We were just approved for a new loan by a lender under FHA and I am wondering if they will take back the approval if my credit scores will go down because of the short sale.The lender fully knows that we are undergoing a short sale and took all our fico credit before this short sale closes.Do you think any posibility of my credit score going down will affect the lenders approval of my new loan?Can they take back the approval knowing that after a short sale the credit scores might get affected?thank you very much and have a wonderful day.

    • Yes there is a possibility as they are likely to show your mortgage (after being paid by the closing of your short sale) in the collections/write off’s section of your report). I can’t say for your situation but I’ve seen people who were current on their loan after a short sale lose between 43 and 89 points. It’s important to pay attention to this because if you drop below 640 with me (as low as 620 with others), you’d fall out of eligibility for FHA financing. Sometimes a good way of avoiding this is to close on your new purchase the same days as closing your short sale as the credit score drop would not have taken place by that time. In other cases, people will take month to month leases and buy as soon as their credit ticks back over 640.

  • Kim from Sarasota, FL, United States:

    Chas – thx for responding. The reason I ask about credit scores is my ultimate goal is to preserve my credit as much as possible as I have spent years rebuilding but I am in need of funds to relocate. I really dont want to miss payments on short sale if I dont have to but I am not looking to repurchase for a couple of years anyway.

    If the hit to my credit will be the same with missed payments vs no missed payments and the short sale would get processed faster then it would be help me to miss payments and save funds to relocate.

    I know you cant advice me on whether to miss payments or not but my I was hoping to get info on if the credit hit is the same.

    By the way I have A LOT of active credit! Too much! I pay everything on time but my DTI is terrible and that should improve when I relocate.

    Your thoughts? Thank you!

      • Kim from Sarasota, FL, United States:

        Chas – I guess this article answers my question on missed vs non-missed pymts and hit to credit score.


        It is disheartening to know your credit is hit hard either way.

        It looks like the only way to preserve credit is to try to get the lender to report the short sale as “paid” which I have read can be done but is rare. To do that you can not have any missed payments and must have a compelling hardship letter so in that regard I can see not missing payments as well as if you wish to repurchase.

        I believe I have compelling hardship/extenuating circumstances but my goal is more to preserve my credit than repurchase right now.

        Do you have any info on GMAC and their track record of allowing a short sale to reflect “paid” on a credit report or any info to help my case?

        Thank you!

        • I have only seen them report it in the collections/write off section of reports reading “creditor settled for less than the amount due.” This is pretty standard. Good article you found there. You may also want to read this one: http://iloanhomemortgage.com/uncategorized/buying-after-a-short-sale-is-an-excellent-mortgage-credit-risk/.

          • Kim from Sarasota, FL, United States:

            “What percentage of homeowners in your area are upside down on their home, suffering a hardship and current on their mortgage and installment debt?”

            “Educated homeowners are on board . . . Realtors are on board . . . it’s time that lenders got in the game!”

            AMEN! Great article. Thx for sharing.

            I am asking any of your bloggers that have successfully had a short sale marked as “PAID” on their credit report for advice here. I have seen some posts from a few that stated their lender did that for them. Can anyone give me any advice/help on how they negotiated this?

            I know it is rare but if at all possible Im going to try my hardest to negotiate that! I am going to continue to pay on time and I have a def hardship and need to relocate to help my father who is ill.

            Chas – as far as income is concerned on a new loan, if I relocate and stay in the same job field do I need to worry about length of time in my job as far as qualifying? Just curious.

            • Thanks for your kind words. Regarding length of employment on your new job. If it’s full time, you’ll likely need to provide 30 days of paystubs prior to closing and be on the job at point of application. If your job is part time (i.e. less than 40 hours a week), let me know because those guidelines are long and messy.

          • Kim from Sarasota, FL, United States:

            Chas – you had said that you cant say with any certainty how my credit will be affected with a short sale. I pay everything on time and have no lates but I have a very high debt to income. If I am approved for a short sale and relocate and then work on paying my debt down will my credit be less affected or does it go by what you did BEFORE the short sale?

  • Victoria from Bel Air, MD, United States:

    Hi, my husband’s job transferred last year to another state so we did a short sale. We were required to be delinquent on our mortgage payments to get the short sale done, so we missed one payment. We are now renting for two years and when we buy again will be doing a VA. We closed on June 1st 2012. When can we start the process of getting pre-approved for another mortgage? Do we have to wait exactly two years to the day to even put in an application or do we have a chance of getting approval 2-3 months ahead as our lease will be up at the end of May 2014. We live in Maryland. I would appreciate any information that you are able to give.



    • I’m not licensed in MD (getting licensed in VA but not MD) but I can answer your question. If you’re going to buy after a short sale using a VA mortgage, I’ve written a comprehensive article separately on that. Here’s that link: http://iloanhomemortgage.com/uncategorized/buying-a-home-after-a-short-sale-using-a-va-mortgage/. I just re-read the article to make sure that it covers all your questions and it will but be sure to visit the link on extenuating circumstances and let me know if I’ve omitted part of your question.

      • Victoria from Bel Air, MD, United States:

        Hello, thanks for the info. The only thing for us is we were required to be delinquent or the short sale would not have been approved, that is why we had to miss a payment and it was only one that we missed. I realise that 2 years is the waiting period to get a VA, but is it actually to the day, June 1st 2012 was the date we closed. We would like to start the pre-approval process before our lease is up at the end of May 2014. Do we have a chance of getting pre-approved but not being able to close until June 1st 2014, or do we have to wait until June 1st 2014 to start the pre-approval process?

        Thank you for any more information.

  • Michael from Bellingham, WA, United States:

    Hey Charles- I hope you are having a great weekend!
    I wanted to run this by you:
    Do you have any opinions on buying a seller carry home?
    Sounds like they do 10 or 20% down and about 6% interest for anywhere from 2 – 5 years.
    On top of all the other unknowns I have, I worry what would happen if that seller who is carrying my loan filed bankruptcy or got divorced or something like that.
    I would love your opinion/thoughts.


    • Michael,

      I can’t give legal advice so I’d have to tell you to ask an attorney about that issue concerning the seller filing bankruptcy or getting divorced. I used to arrange mortgage financing along side seller carry backs all the time. They can be a great way of getting a good transaction done. Here are a couple words of caution:

      1.) Make sure you’re paying a fair price for the home so that when you eventually have to refinance out of the seller carry back, you’re not upside down.
      2.) Don’t take a short balloon term!!! You have to give yourself adequate time to be bankable come time for that balloon. I always recommend 5 years.
      3.) Make sure that, if you had any major credit events, your waiting period won’t put you in a disadvantaged position come time to refinance out of the seller carry back. Here are those waiting periods: http://iloanhomemortgage.com/uncategorized/waiting-periods/

      Good luck and let me know if I missed the substance of your question.

  • Rosie from Arlington, VA, United States:

    One additional question. Do you know if the Servicemembers Civil Relief Act can help make a case for an extenuating cirsumstance? Thanks!

    • This is an interesting question. The only way this would come into play is if, under the SCRA, you weren’t obligated to make the payments that were deemed to be late. If I could document something like this, it would likely be a game changer for you and might allow you to buy quickly. Don’t get your hopes up yet but yes, we should look into this. Here’s more you’ll want to know about the SCRA:

      The Servicemembers Civil Relief Act (SCRA) was signed into law on December 19, 2003. The Act amended and replaced the Soldiers’ and Sailors’ Civil Relief Act of 1940. In general, the act seeks to strengthen the national defense by providing for temporary suspension of legal proceedings and financial transactions that may adversely affect the rights of servicemembers during their military service. These types of concerns shouldn’t be on the minds of our fighting forces.

      The SCRA covers all Active Duty servicemembers, Reservists and the members of the National Guard while on active duty. The protection begins on the date of entering active duty and generally terminates within 30 to 90 days after the date of discharge from active duty.

      Among other things, the act contains special rules regarding debts secured by a mortgage, trust deed, or similar security interest in real or personal property owned by a servicemember. Generally, the act prohibits the sale, foreclosure, or seizure of property, based on a breach of such a secured obligation, during the period of military service or within 90 days thereafter. The prohibition applies only to obligations that originated prior to the servicemembers military service, and for which the servicemember is still obligated.

      The SCRA protects servicemembers against foreclosures of mortgages, as long as the following facts are established:

      1. The relief is sought on an obligation secured by a mortgage, trust deed; or other security in the nature of a mortgage on either real or personal property;
      2. The obligation originated prior to entry on active duty;
      3. The property was owned by the servicemember or family member prior to entry on active duty;
      4. The property is still owned by the servicemember or family member at the time relief is sought.
      5. The ability to meet the financial obligation is materially affected by the servicemember’s active duty obligation.

      A few examples of other obligations the service member is protected against:

      * Outstanding credit card debt
      * Installment Contracts
      * Mortgage payments
      * Judicial Proceedings
      * Taxes
      * Terminations of lease
      * Health & Life Insurance Protection

  • Rosie from Newport News, VA, United States:

    Thanks for the valuable info you have provided on your website! In Nov 2010 we were relocated from Oregon to Virginia with military orders. We ended up closing on our Oregon home in June of 2012. We were missing a few payments (to force the short sale through) but our lender removed it from the record and our credit shows no missing payments. So, it’s been 8 months since our short sale, but our move was because of the military…is there any possibilities of buying a home because of extenuating circumstances? We have money for 5% down, our credit scores are 650+ and we’ve got a 2 yr perfect rental history (plus 1.5 yrs timely payments on a new car) and want to buy a house well under what we can afford. (approx $315 k where we could qualify income-wise for $450k) Any hope for us, or are we stuck renting for 2+ yrs?
    Thanks for any advice you can offer!

    • Well, when I’m doing these loans, one of the things that I do is what’s called a tradeline update. This is where I request that my credit vendor verify payment history directly with a creditor. Usually, they just get this info directly from the 3 credit repositories but when we’re doing these loans, we have to get that history directly from the creditor to ensure that our clients did pay as agreed for the 12 months preceding the short sale. If that comes back clean, then I’m in the clear. If it doesn’t. I’m dead in the water and subject to a 3 year waiting period and a 2 year waiting period for Fannie Mae (because in your case you’d qualify for extenuating circumstances with Fannie Mae but extenuating circumstances allows a 2 year waiting period vs. a longer waiting period, nothing less than 2 years though).

      Here’s how buying after a short sale using VA financing works: http://iloanhomemortgage.com/uncategorized/buying-a-home-after-a-short-sale-using-a-va-mortgage/.

      I hope this helps and if I’ve missed something, let me know.

      • Rosie from Arlington, VA, United States:

        Thank you for the reply! When we closed on our short sale our lender told us they would not be reporting that there were late payments…when we checked our credit report it shows no late payments on the mortgage and my husbands score is back up to about 700…so I guess we need to just sit down with someone and have them go through our financials. to see if it actually shows up or not. I would hope a 2 yr active duty recall would qualify for extenuating circumstances. It’s frustrating because we make well over what we would qualify for on the home we want to purchase (ie, %600k and the home we want is $319)…it’s our dream home and wow, it’d be a bummer to lose the opportunity.
        You’re a pretty amazing guy to be answering all these questions from strangers who need advice. Thanks so much. If you know of any good brokers in Virginia, please let me know! :)

        • OK. You gotta call me. I’m all roped into this problem now and I want to fix it. 612-234-7283. I think it does qualify for extenuating circumstances but extenuating circumstances on VA financing only comes into play when you’re trying to use the 2 year waiting period vs. the 3 year waiting period if you’re buying a home after a short sale using a VA mortgage. Click that link and read that article.

          • R from Newport News, VA, United States:

            So, things were going slowly with our banks as they are reviewing the SCRA and our orders for a possible exception to the FHA short sale time frame. Amazingly we had an ambitious realtor find a solution for us! We fell in love with a historic farmhouse in Virginia and called the realtor about it, looking for a lease to purchase. The owners weren’t interested, however, he got us in touch with the Vice President of a locally run bank that does in-house loans. They did not care about our short sales because we had a “good excuse”…military orders. They didn’t even request copies of the orders. They pulled our credit and it’s over 650, so they prequalified us for a loan. I am SO happy!! I thought to myself…surely in America we don’t have to be tied to 3 government options or loan sharks to buy a house, and a small town banker proves that right. :) We just made an offer on my dream house. So fyi, it is possible! :) We’ll have to get a final approval after property assessment, but the banks loan committee has already reviewed our income & credit, so we expect it to go through. So, don’t give up hope….just go small. go rural! :)
            Thanks for your help!

            • Gen and Michael from Bellingham, WA, United States:

              What do you know about 2nd change loans? A bank is telling us we qualify due to the only ding on our credit being a short sale with 2 late payments in July/August of this year. Does this soudn right to you? Thanks.

              • Are you referring to secure credit cards that credit unions offer?

                • Gen and Michael from Bellingham, WA, United States:

                  Sorry. Typo. SECOND CHANCE. A home loan. A bank is telling us we will qualify for a 2nd chance loan right now since the only hit to our credit was the short sale (with missed payments) the ss
                  sale was just this summer. We are still waiting ofr the final approval but should get it today. I had never heard of this SECOND CHANCE loan. Have you? (basically its 20% down. 6% interest for 5 years then its adjustable and you can get a new loan (no penalty) in 2 years.
                  Soudns pretty good! But wanted to ask you your thoughts…. Thanks!

                  “What do you know about 2nd change loans? A bank is telling us we qualify due to the only ding on our credit being a short sale with 2 late payments in July/August of this year. Does this soudn right to you? Thanks.”

                • Yes I have. They are rare and can be a pretty good deal. The terms are usually pseudo subprime but hey, it’s better than a statement of credit denial and no loan, eh? Congrats!

  • John from Roseville, CA, United States:

    I’ve heard different opinions on appealing missed payments. Our lender was willing to approve our short sale (while staying current on payments for the first 8 months of the process) however the PMI company stated we had to be at least 60 days. I’ve been told we could possibly appeal this. Have you heard anything like this?

  • Marta from Chicago, IL, United States:

    Okay I find this all very encouraging. We bought in Woodbury in 2008 before the market really got bad and we’re moving because I got relocated to Chicago. We’re current on our payments and it’s not a financial thing we just can’t sell our house for what we owe (and don’t have the money to make up the difference) and thus have to do a short sale. We’re putting it on the market this week and our relator in Chicago told me that I can’t buy after a short sale for two years! With two kids and a dog I really want to be able to move us to a home and not have to rent for two years and then move *again* when we can buy.

    Also, you don’t happen to know the rules about the First Time Homebuyer Tax credit do you? Everything I read in the IRS paperwork seems to imply that we don’t have to pay back the credit due to an exception. But the exception seems way to easy to meet that I’m skeptical.

  • Leisa from Land O Lakes, FL, United States:

    I am divorced with a 15 yr and 18 yr old living with me and have had a short sale contract on my home for 13 months only to just now be told that this won’t be a “total forgiveness” short sale. My equity line credit union is insisting on 30% = $20100 at closing to agree not to pursue for the difference. OR- Me and my ex can sign that we are responsible for the $66000 deficiency with no terms being revealed prior to signing as to if they will decrease the amount, what the payments will be, and it will be a joint payment with my EX. My ex will not communicate with me but I offered the credit union $2000 that my family will let me borrow and they say absolutely no. They will only accept 20k. I told them I will not sign to be on a deficiency payment with my ex for who knows how long, and we apparently can only offer less at closing, so I suppose foreclosure is our only option. Meanwhile I am engaged and hope to marry and move to Seattle, WA this summer. I don’t know how marrying will affect my foreclosure or how my foreclosure will affect my future husband. If I understand right, if I am pursued for the deficiency after marriage, they can’t go after anything under my new spouse’s name alone. They can only go after things in my name. And, of course, my credit is greatly affected and I’m used to having a 780 score. All other debts are paid in full and only the two home mortgages remain (and a car payment-which is up to date). The title agency warned the credit union that they would not win against me in a homestead with head of household status and a minor. But now, I want to marry and get my daughter to WA for her last two years of school and I don’t know if that makes me more vulnerable and not as “needy”. Sorry so long. Any advice!?

    • WOW! Not a ton of advice that would be helpful necessarily but I have seen people come up short cash to close in this way who’ve had as good of credit as you do. They were able to find local banks or credit unions that were able to do an unsecured installment loan to pay off the difference. You might want to try that and in the meantime, threaten your second mortgage company that you’re going to file chapter 7. :)

      • Leisa from Land O Lakes, FL, United States:

        My spouse started the divorce 2 years ago and then starting in Jan 2012, I couldn’t pay the entire amount by myself, so I quit paying the mortgage and used the portion that was available to pay off the shared debt and lawyer fees from the divorce. My score tanked and my auto insurance significantly increased due to score. They laughed when I said I might have to foreclose or file bankruptcy and said it didn’t matter. They’d go after me and my ex any way. I can borrow 10k but my ex refuses to pitch in half of 20k and I’m waiting to see if he’ll offer 2k so we can counter offer 4k together.

        I’d prefer to finish this chapter before remarrying but the timing with my daughter’s school is an issue. If getting married during the process doesn’t really affect the process or my future husband, I’d rather just marry in the summer. Can you think of any negatives?

        • Man this one is really over my head. These are better questions for both a bankruptcy attorney (because I’m curious how the 2nd mortgage could come after you post bankruptcy) and a family law layer because I don’t understand the implications of your previous marriage and this credit event as they relate to your new relationship. This one is just out of my field of expertise.

  • Michael from Oak Harbor, WA, United States:

    ;-) Thanks so much!

  • Michael from Oak Harbor, WA, United States:

    Moving to Idaho. The Boise area. Id appreciate it! Thank you VERY MUCH for all the time you take here. You are helping people…. and its almost unheard of these days! Thanks!

    • Thanks for that. I went through a short sale myself so I have a soft spot for this stuff. Unfortunately, I don’t have any good contacts there. Here’s what you should ask, “I am looking to buy 2 years after a short sale with 20% down using a Fannie Mae backed loan. Can I apply with you to get a loan quote and make sure my application get’s an Approve/Eligible finding through Fannie Mae’s automated underwriting engine?” This question will scare the crap out of them because no random potential client knows this much but it will tell them exactly what you need them to do. Plus, the idea of you doing this is very funny to me. :) Good luck!!!

  • Michael from Oak Harbor, WA, United States:

    We could put 20% down. And I have an update- checked credit score last night, and its showing upper 600′s at one and 700′s at the other two. Havent paid for actual fico yet. Last I checked (Late sept/oct) it was 611. I dont know if I should be really happy, or see if its an error!

  • Michael from Oak Harbor, WA, United States:

    Great info. Thanks. Can you advise: Owned home for 24 years. Stable jobs, excellent credit. House went upside-down and lost about 50% of its value. We did a short sale, and HAD to be late on payments to qualify for that.(2 months to qualify, but during the whole process 6 months passed. They did forgive all the balance.) HOWEVER, we purchased another home out of state just before the short sale as we anticipated the credit hit.
    Low-and-behold, we want to sell/move. (Area is not good for families. We are a family).
    We put $50k down and could probably get out of this with most of that back. But… then what? Our credit fell from excellent to below 620 (611) . Any ideas on us getting a loan? Still have the same stable job. Staying here would be very detrimental to our family. Is there a waiting period after short sale no matter what in our case, or if we get our credit back over 620 sooner does that help? Or, are we destined to become renters? Greatly appreciate any advice.

  • Lynn from Dallas, TX, United States:

    We just short sale a house in Texas did not have any late payments until my husband lost his job and miss 2 payments ,but it does show on the credit report the late payments and it show on the credit report the house paid in full . Can we apply to get pre approve. Do you any one could help us with being pre approved we are in Dallas ,Tx

    • Unfortunately, in the process of underwriting, they will verify the 12 month payment history on the mortgage/mortgages int he 12 months preceding the short sale regardless of what the credit report says. This didn’t use to be a common practice but now it is due to how often lenders are reporting short sales incorrectly to the credit bureaus. Consequently, this situation wouldn’t work and your situation would be subject to the normal waiting periods associated with the various loan types.

  • Lisa B from Austin, TX, United States:

    Hi Charles, we had a short sale in May 2010 and were never late up until the short sale. Wells Fargo would not do a modification/reduction and stated we would have to be late to do the short sale. So we were about 60 days. Now we are looking to purchase a lot and build (2 years later). Our credit scores are 700+ with little debt and excellent income, nearly $200,000 and steady. What are our options and we only want to put %10 down. thanks.

    • Great question. Because of the late payments, you’d be on a 3 day waiting period for FHA or VA but not for Fannie Mae. Fannie Mae will give you a two year waiting period if you have 20% down and restored credit (which you do). If you want to do 10% down there’s only one way to do that. It’s also through Fannie Mae but you’d need to document, and document well, what’s called extenuating circumstances that surrounded your need to do a short sale. Everything you need to know about extenuating circumstances can be found here: http://iloanhomemortgage.com/uncategorized/what-are-extenuating-circumstances/. The key to both of these loans getting approved is getting a Fannie Mae automated approval using their desktop underwriting software which is a type of artificial intelligence that assists in making loan decisions. The only way to get one of these preliminary underwriting approvals is to apply with a lender and have them run it.

  • Joe from Portland, OR, United States:

    Hi Charles, first let me thank you for the time and personalized responses you have been providing here. This thread is a great resource to those who need this kind of information.

    I am being relocated from MSP to Washington (state) and want to by a home 1 year after a short sale. I was current on my payments with Chase (the lender on the short sale) but for some reason Transunion is reporting I was late on two months (Experian and Equifax don’t show this). I contacted Chase and their records show show I was on time and they faxed me a payment history showing that. The mortgage I’m looking for is $350k, I’m putting $50k down from a personal account, and I have the offer letter from my employer of 6 years showing a 10% pay increase with the new job (taking me to $170K base salary). I have no other FHA loans and a credit score of 750.

    I am working on getting Transunion to fix the error but in the mean time, I can’t find a lender that will pre-qualify me for a FHA loan even though I believe that FHA guidelines indicate that I should be eligible.

    Do you have any advice or recommendations of potential lenders in Washington you could refer me to? Thanks!


  • Julie from Jackson, MS, United States:

    Charles – I had a short sale in Vegas last November. In the divorce paperwork I was to assume the loan. Unfortunately with the market crash, that was impossible. I did attempt to obtain a loan modification and failed miserably after three years of trying. We received notification from Wells Fargo that either they would foreclose or I could short sale. We elected the short sale option. I now reside in Mississippi. What is the waiting period to obtain a conventional loan with 20% down? I have heard that it is three years. Is that correct?

    My credit score is 765 and this is the only blemish of record.

  • Matt from Hamer, ID, United States:

    Question! We are relocating for a new job due to possible lay-offs. My mortgage is small, FHA, be we bought before the market dropped and now we are upside down in the cost of the home. We were able to get pre-approved for a second home loan since we don’t pay much on our first one. We were told to get this second house, then short sale the first one in order to get out of it. Does this sound right? We will still be able to afford both mortgages, but it will be tight on the family paying both mortgages. It is doable but I am beginning to have second thoughts. Any advice on what we should do?

  • Nicole from Scottsdale, AZ, United States:

    Got a question. I have a first and second lien. First is current and I am attempting to settle with second due to loss of income. Well i was just offered a promotion but it requires a move to another state. I would like to short sale and purchase in new state but I am curious if the late payment on the second even though i am current on first will kickoff the waiting game. Will it? Can I bring second current and avoid the 2 year if it does count?


    • Don’t shoot the messenger but yeah, it does kick off the waiting period after the short sale. :(

      • Nicole from Goodyear, AZ, United States:

        I wanted to ask one follow up question to my post on 12/11/12. What if I settle second lien and then sell my house as a normal sale, no short sale. Would this avoid the waiting period?

        • If the second mortgage was settled, it would still account as “settling for less than the amount due” which is in effect selling short (because the sum of the proceeds from your sale would have been less than the total of the mortgages owed against it) so the waiting periods would still apply. However, if your payoff to the 2nd mortgage was formally treated as full and final payment with no chance for a deficiency judgment and you had no late payments on the first or second mortgage in the 12 months preceding the closing of the sale, you should still be eligible under FHA or VA (if you’re VA eligible).

  • Kim from Sarasota, FL, United States:

    Chas – I am needing to relocate and I am interested in doing a short sale without being late. I have a Freddie Mac loan. I suffered a bankruptcy and foreclosure 13 years ago from a divorce and have spent years rebuilding. My realtor thinks missing payments is the quickest wasy to get short settled but I am not worried about the time frame as much as the damage to my credit. There is a lot of mis-information out there as to credit damage. I would like to not miss payments and possibly build or buy a home in a year or two. Is this a viable option for me? My mortgage payments increase yearly as it is adjustable and I am working side jobs just to pay my taxes and insurance as I did not escrow. The repairs are mounting and I am living paycheck to paycheck. I have no lates on my credit at all. Lots of debt but I pay it all and on time. I am relocating to help my father who is ill, to be with my family, to get back on my feet and to be with my son who is in college. I have no assets, no retirement, no savings acct. Just debt. I would like to continue making payments on my mortgage with GMAC until the short sale goes through. Is this a viable option for me?

    • The most important information here is that you have a Freddie Mac loan. As far back as 2008 (and maybe before for all I know), Freddie Mac provided loan workout solutions for both people who were late on their mortgage OR those that were in Imminent Danger of Default on their mortgage. Here’s what you need to know on that: http://iloanhomemortgage.com/uncategorized/short-sales-do-not-require-a-delinquent-mortgage-imminent-danger-of-default/. Later on, much of the rest of the industry came to adopt Freddie Mac’s principles on this. Here’s what you need to know on that: http://iloanhomemortgage.com/uncategorized/do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/.

      I can’t empirically say that this is an option for you without having the full facts however, it sure as heck sounds like it is.

      Further, if you do stay current on your mortgage and other installment debt in the 12 months preceding the closing of your short sale and you relocate, . . you’ll have a great change of getting a FHA loan to buy your next home when you land on your feet.

      • Kim from Sarasota, FL, United States:

        Chas – I have several questions:
        1) I rec’d info from a company offering a HARP refi and debt consolidation. Have you heard of this?
        2) If I were approved for HARP re-fi and decide to relocate down the road and I am still underwater can I still short sale?
        3) What is the difference in hit to credit score if you miss payments on short sale as opposed to not missing any payments? Is there a difference or is it the same hit and if not what is the difference in points?
        Thank you!

        • Kim,

          To your question number one. No I haven’t heard of such a thing because there’s no such thing. The HARP program only allows for a maximum of 250 dollars in cash back and doesn’t allow for consolidation of mortgages let along consolidation of debt. Whoever sent you that solicitation doesn’t know what their talking about. :)

          To your question number two. I couldn’t say for sure. I do know people who have done short sales where the underlying mortgage was a HARP loan if that helps clarify things. It would largely depend on the credibility of your short sale hardship letter and supporting documentation I would imagine but this is all pretty hypothetical.

          To your question number three. While there’s no possible way for me to know this with any high degree of specificity, there are some things I could suggest. If you have a lot of active credit (i.e. a couple of student loans, a couple of car loans a mortgage and 3 credit cards), you won’t be affected nearly as much as you would if you had little active credit (i.e. a mortgage and a small credit card) presuming that you stay current on your other obligations. One thing you can do is use the MyFico credit score estimator and see what the different scenarios would look like: http://www.myfico.com/ficocreditscoreestimator/. It’s pretty accurate and I’m a big fan of MyFico.com. Now, if you’re asking me this because you think you need to be late in order to qualify for a short sale, be careful. There’s a lot of misinformation on that out there. I’m sure you’ll be shocked but I’ve written an article on that topic too. Be sure to read through it if this is why you’re asking me this question: http://iloanhomemortgage.com/uncategorized/do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/.

  • Jeff S from Ardsley, NY, United States:

    My wife and I completed a short sale back in January 2010, due to the fact we were trying to sell for almost 3 years because the taxes kept increasing well past what we could afford. We both have credit scores of 710. On our credit report it states (Legally paid in full for less than the full balance). Due to issues with the bank we had two 30 day past due on our reports (originally it stated 4 because the bank did not close the account until 4 months after they were paid, but they agreed to remove the last two). We have never been late on any of other accounts and both have excellent income.

    Thank you.

  • Brooke from Brentwood, TN, United States:

    Please let me know your thoughts on our situation. I would appreciate an insider’s view. My husband and I (about 3 years ago) applied for a loan modification. At the time, he went through a job loss. A realtor suggested a loan modification. So we applied and like everyone else, was given the run around, told they never received documents we sent, sent the same documents multiple times, etc. Finally after a year into the waiting game, they said we had to open an impound account “as a condition of modification.” We were reluctant, but did so since this was a condition of modification. A rep from that BAnk told us that was a good sign because it meant it was going through. So they open the impound account and our monthly payment went up by $600 a month to fund the account of course. They continued to give us the run around month after month after month. We called weekly as advised but never with any answer. Always that it was “under review.” So two months ago, we get a “notice of default” from a bank we’ve never heard of. It seems the first bank sold off our loan and the new bank put us in pre-foreclosure. We asked what the default was and the bank said it was for 2 years of taxes and insurance that we owed our BAnk. Although we were paying an additional $600 a month for taxes and insurance, our BAnk was obviously not crediting our impound account. They never said a word–not a phone call, not a notice. We called them weekly and they never said “hey, your impound account is empty.” They just quietly paid our taxes and insurance. What bank does that? If there is no money in the impound account, they just keep paying your taxes and insurance for years and years??? We were always current with the county and with our insurance company, so we knew the bank was paying and had no idea anything was wrong. Our BAnk sure never said anything. Two years of taxes and insurance plus all the interest compounded added up to a HUGE “default” amount. We called our BAnk and they cannot/will not answer any questions. They only say “that file is closed.” We still don’t know what they did with the $600 more per month that was to go to the impound account. We are now selling via short sale and there is currently a bidding war on the house (would be a break-even and not a short sale were it not for this “default”). We are not trying to stay in our house, but I can’t stomach this whole situation on principle alone. I feel like it was intentional and not an oversight–like they were instigating a default. I’d love your thoughts on this, and if it’s something you are not at liberty to comment on, I would love any referral you could give me as to someone who I could discuss this with. Thank you.

  • Kristina from Long Beach, CA, United States:


    Here’s our situation:
    My husband and I are currently in the process of short selling our home. We have an FHA loan and are about $50k underwater. We have a buyer and Bank of America (servicer) has approved us through Phase 1- SS Qualification (we had to be 31 days late on payment), and now just passed through Phase 2- Buyer Offer Approval. We are now moving into Phase 3- Closing and hope to be done with this in the next 30 days (We have had the offer since April!).

    Here are my questions:

    I understand our limitations to buy again since we are now defaulted…(thank you for your guidance on this), but wondering:

    1. My husband had an accident and thumb amputation along with a whole winter being laid off due to weather (construction), as well as us needing to move closer to work (he was commuting 3 hrs each way for some jobs). Do these circumstances qualify as extenuating circumstances if all of these events led up to our need to short sale?

    2. We are now going into closing and will most likely be 4 months late on mortgage. That alone will affect our 740+ credit scores… BUT, can you recommend a way for requesting a “zero balance, paid as agreed” on our credit report? Or do you know how FHA reports this with their short sales???

    3. What is the deal with FHA coming back at us for deficiency written off? Are we safe because we are in California? I also thought that if they take the house back in the short sale, it is considered paid in full, and all they can collect???

    Thinking ahead, and how this god-awful long process will effect our ability to obtain a loan 2-3 years down the road. Any info on this would be appreciated! Thank you.


  • Andy from Portland, OR, United States:

    Hi Charles, I’m a realtor and have a client with twins that is pregnant with their next child. The home they are in does not provide for the needs of their family (it’s like 1300 sf). They said they did refi in the spring (they bought with 80/20 or 80/15/5 and refied the 1st). What do you know about people short selling for a larger home but at a lower price?

    • Hi Andy,

      You’re not going to like this answer. The only way I have been able to get transactions like this done immediately after a short sale (VA and FHA) is where the buyer/borrower purchases a home “outside of a reasonable commuting distance” from the property previously sold short. Different lenders have different interpretations of what “a reasonable commuting distance is.” Some take this to mean that one is moving from one MSA to another MSA. Some lenders take a mileage restriction (often 100) and others have a commuting by car restriction (one hour). I hate how vague this is but it is what it is.

      If they are not relocating outside of a reasonable commuting distance, the shortest waiting period would be 2 years with Fannie Mae (and a down payment of 20% – or 10 if they can document extenuating circumstances) or 3 years with FHA or VA.

      Sorry to be the bearer of bad news.

      Thanks Andy.

      • Kelley Rhea from Eugene, OR, United States:

        Is the reasonable commuting distance rule only if you are looking to buy a similar home? we are currently trying to short sale our home due to a 60% wage reduction and have never missed a payment. We are looking at purchasing a home that is $100k less than our current home and smaller but only a few miles away. Can we still get an FHA loan right away?

  • marilyn from Rosedale, MD, United States:

    Hi Charles,
    We just got a contract for our house on short sale.Me and my sister co own the house and we had a fall-out, we have not been in good terms so we decided to part ways.It is a sort of divorce..We have not been late in payments and we plan to continue paying until we close.Our short sale specialist is trying to do a hafa short sale so that the lender will not go after the deficiency and she said under hafa rules that was implemented lately,lenders are obligued to report to the credit beraeu as paid in full or zero balance which will not have a negative impact on our credit.My husband and I have an excellent credit right now,close to 800 and we don’t have debts.Can we apply for an Fha loan to purchase a house right after( our previous home was not fha), we will settle the short sale?Our problem is we don’t want our kids to transfer schools .Can we buy a cheaper home but in the same zip code?Can we buy a new home as long the selling price of our previous home is more than the new one?If yes can you recommend or help us find a lender who doescthis kind of stuff?We are in the white marsh area in baltimore county maryland.Thank you very much and I hope forcyour response.

  • Nicole from Tampa, FL, United States:

    My husband and I would like to move 1200 miles away to be closer to family and therefore would be relocating our jobs. We purchased a house in 2008 with an FHA loan and have never been late on our mortgage since we purchased. We would like to sell our house and buy / build a new home in Western New York; however, we are about $30,000 to $40,000 underwater. We both have credit scores over 700 and have been current on every single bill since mid 2006. Is there a way to short sale and purchase right away? How much would we need to put down on a new purchase?

  • John M. from South Lake Tahoe, CA, United States:

    We had to short sale our home do to a motorcycle accident which left me paralyzed in Oct 2010. We did not make house payments for several months prior to the short sale.
    The Wells Fargo 1st and 2nd have been completely discharged. We moved into a house that my parents own that was remodled for wheelchair access etc. We haven’t been paying rent to my parents for the last year, to pay for medical expences and credit card debt. My parents would like us to buy the house which is worth about double what they want us to buy it for. They want 150K and its probably worth close to 300K. I was on full time dissablility for 3 months following my accident, and never missed a full paycheck. I am the primary income for my household. My credit is about 660 now and we were over 700 prior to the accident. I don’t have 20% down. but have been employed by the same company for 17 years and my parents are willing to quick claim the property to us, so we can get a loan for the 150K and pay them off. Actually, I would like a bit more to pay off all credit card debt. Does my accident qualify for an exception to get a loan? Or, are we stuck waiting it out? It’s only been a year since the short sale.

    • Actually, you may be able to do this after one more year using Fannie Mae financing and documenting “extenuating circumstances.” This transaction can be done with a gift of equity from your parents when they sell the house to you. A gift of equity is when you are given equity in a home to buy a home and the money does not have to be paid back. Normally, it is between relatives. This gift can cover the required down payment of 10 or 20 percent (depending on your pre-approval). The key is this. . . You’ll have to wait until you’ve had a full 2 years from the closing of the short sale.

  • kOSHY from Mesa, AZ, United States:

    I short saled my home on December 16th 2009, the lender said that my loan will be approved by december 16 2012. Can i look for new homes now and give offer now and close after December 16th or should I wait until December 16 to make an offer for a house or even to look for a house to purchase.

  • Bryan from Minneapolis, MN, United States:

    I have a unique situation. I had to do a short sale 2.5 years ago and consequently also a bankruptcy 2 years ago. But recently my wife and her brother have inherited a home. The value of the home is approx 160,000. The home has no mortgage currently (100% equity) and we are trying to pay off her brother for ownership of the home. We only need 60,000 to pay off her brother. Being that there is a 3 year waiting period for a short sale to obtain a fannie mae is there any way to get a loan another way? Any suggestions? For a home equity loan or line of credit, it that still fannie mae? Our credit has been flawless since the bankruptcy credit score is at about 660. Thanks

  • Nick from Phelan, CA, United States:

    I completed a short sale in AZ on a primary residence in October of 2011. Do to a divorce and reduction in pay. I fell behind on payments on this house prior to the short sale. I moved to another home I owned in California (I bought the California house prior to buying the AZ house) which I have never been late on a payment (9+ years). I owe +- 160K on the CA house that can appraise for over 300K. I have a credit score in the low to mid 700′s and I am now remarried. My wife has good credit also but her name is not on the California house as of now.
    I would like to take advantage of the low interest rates.
    Am I eligible to refinance the California house? Or are there any other options I/we have to be able to take advantage of the low interest rates?

    Best regards…..

  • Brian from Saint Paul, MN, United States:

    I completed a short sale in Dec 2010, unfortunately we were behind on payments. I was told it would be a two year waiting period before I could buy again. Now I am reading they changed the law to 3 years? What can I do? I’m ready to buy now. Credit is in the mid 700′s and I can put 20% down.

  • Steve fryer from Puyallup, WA, United States:

    We just tried to apply for a USDA loan and are running into some issues over the amount of money we make . We pay child support and daycare expense but it’s not through court order . All my bank statements show I pay every month and the totals but I can’t use it to deduct from my annual money for USDA limits . Do I need to get court order for child support ?

  • Jason from Oklahoma City, OK, United States:

    I just completed a short sale and a month later I was approved for an FHA loan for a new house. My situation was a divorce. I have perfect credit and was never late on a mortgage payment. It was very easy to do and it is great that FHA is doing this. I think another stipulation was the fact that I was buying a smaller home in a different area too.

  • Vicki Cade from Ukiah, CA, United States:

    In the process of a SS due to relocation of my husband’s job. Still paying mtg and dont plan on missing any payments. Never late on any bills. Fico 850+… being told we will still have to wait two years. I find that really annoying since this is a hardship relocation. Already have offer on the house after one week on mkt. Hoping to close soon and move to new town. Would love to buy rather than rent. I assume we can buy again. Any ideas

    • Relocation is the best hardship you can have with respect to the flexibilities afforded in FHA’s program for people buying immediately after a short sale. The same goes with VA if you’re VA eligible. The key is you can sell short a FHA loan and go into a FHA loan or short a VA loan and go right into a VA loan. If you’re planning on buying in CA, I can help with your pre-approval.

  • Kitty from Washington, DC, United States:

    Charles I am in the process of completing a shortsale.
    I have NEVER been late on my mortgage or
    Any of my bills. Will I be able to purchase
    Right away or will I have to rent?

    My current score is 750.

  • Cheryl M from Hercules, CA, United States:

    I am about to short sell my home. I know to buy a home I will have to wait at least 3 years to purchase again. My 86 year mother owns her home outright, but is interested in selling it and purchasing a house together as she needs more care and attention. Her home sale would cover approx. 2/3 of the cost of the type of home we are looking at and I would make the payments on the difference as well as taxes and insurance. My question is, can I borrow WITH her, so I can get tax benefits for what I’m paying and work to rebuild my credit and equity?

  • Jen from Inver Grove Heights, MN, United States:

    Hello – I am trying to purchase a home after a short sale 2 years ago. I have a score of 610 but have been told that I can purchase after the 2 year mark but need at least a 680 and 20% down due to the shortsale. I am currently renting for an absurd amount and would like to get out of renting. Is there anyway possilbe that there would be something out there for me currently?

  • Chaerin P. from Baldwin Park, CA, United States:

    Hello – I’m thinking of doing a short sale because my house is over $200 thousand under. The loan is co-signed with my parents one nearing retirement age and the other should already be retired but still working to help pay the bills. I make about $80 a year and have $80K in savings. Is it possible to do a short sale without the bank tapping into my savings since I am a co-signer?

  • Matt from United States:

    I own a home with my brother that we bought back in 2007 for $288,000 with an FHA loan. I lost my job soon after and have not regained my financial status to where it was before that time. The whole time we have been seriously contemplating short selling. It has been a very difficult time to keep up with the payments and we have used savings and borrowed money from family to keep on time with our payments. We have not been late on any of the payments since we’ve owned the house. That being said, we are at a time now where we feel that very soon we will not be able to keep the house and may not be able to last more than a few months financially. My ideal situation is to move out of state to purchase a home where I could afford in the $175,000 range. My credit is about average right now. My question is if I short sale my home, what is the time frame you think I would be able to get a new home loan if my circumstances were as follows…. I would be moving about 700 miles away, my girlfriend with great credit will be the primary loan holder(but with me on it as well so both our income will be included in loan), loan will be for about $100,000 less, and down payment will be 3%. It would be ideal if we could move immediately or in about a year, but we wouldn’t be able to wait for 3 years. What would your recommendation be? Does having an FHA loan discount any of the things I mentioned?


    • Unfortunately having a FHA loan does matter. They currently have a written policy where you have to be at least 30 days to qualify for a short sale. Outside of private label mortgages (i.e. non-FHA, non-VA, non-Fannie Mae, non-Freddie Mac and non-RD loans), FHA is the only one that still has this policy and it’s stupid. If you have a late payment, you’d have a 3 year waiting period for another FHA or VA loan. If you can document extenuating circumstances you might be able to qualify for a Fannie Mae loan after 2 years with 10 or 20 percent down. Otherwise it will be a 3 year wait.

  • Emily M. from Renton, WA, United States:

    To elaborate –

    If I’ve waited 2 years since a short sale, and I want to buy a property with 20% down but the loan amount exceeds the conforming limit, is this still possible?

  • Emily M. from Renton, WA, United States:

    A jumbo after short sale.

  • Emily M. from Renton, WA, United States:

    Hi Charles,

    First off, great info! Please keep this going. Thank you.

    Reading your reply to Donald Reed on 8/13, you stated that the least waiting period after short sale is 3 years. My understanding was that for Fannie Mae, the waiting period is only 2 years for 80% LTV. Can you please confirm?

  • Donald Reed from United States:

    Hi Charles, My wife and I were under water so to speak and were convinced by both our attorney and finance company that we had to stop making payments to get a short sale. This took 18 months. During that time I did eliminate all other debts leaving only the house as a bad credit mark. It has been a year since our short sale and I have retired and want to move from Florida to Tennessee. I do have 20% to put down on a home but have been told I can’t qualify for any mortgages for at least another year. My FICO is about 696. Is there any hope? I have heard about prepurchase such as a lease option to buy but have not had much interest in the Cleveland, TN area. Any input is appreciated.

  • Jeff from Stillwater, MN, United States:


    Thank you for your information on buying a home after a short sale. I completed the short sale of my condo in December of 2011. It was needed after a divorce as I had moved (only 30 miles) and couldn’t handle the payments.

    Since then my earnings have increased and I am married again. My wife and I have a house, but are looking at moving to another one. We have been told that some smaller banks would lend to us just based on our credit scores (both strong), income (much stronger now), and money we can put down (about 30%). I have called several banks, but have yet to find anyone willing. Do you know of any?

    Do you have any other advice?

    Thank you in advance.

  • Kelly from Valrico, FL, United States:

    My husband was a stay at home dad when we bought our home so he was on the title but not on the mortgage. I was self-employed, but after my income dropped substantially I changed jobs and my husband began working full-time. Even with the 2 incomes, we were not making enough to pay everything so I stopped paying the mortgage and applied for a payment modification. I was declined twice so we opted to sell the home. I was 12 months delinquent at the time my short sale was completed. His credit score is still 800+ and we have no debt. I’ve heard that because we were married we have to wait 3 years…but I’ve also heard that some lenders may look at our situation from a “financial” aspect vs. an “ownership” aspect…which would allow him to get a loan. Have you heard of this?

    • I run into this all the time and don’t have a means of getting around it and thus always run into a 3 year waiting period. On a loan application, they’re going to ask about at least 2 things that are going to trigger problems. 1 is 2 years of address history (usually they’ll want payment history). Another is have you owned property in the last 3 years – that’s another trigger. The only way around this is lying and that’s a crime so the waiting period will be 3 years for FHA or possibly 2 under Fannie Mae’s Extenuating Circumstances Rule.

      • kelly mettler from Brandon, FL, United States:

        Hi Charles, I’m still receiving notices when people comment on your blog. I wanted to let you know that my husband was able to buy another house in September, despite my short sale in February without telling any lies. Our old address was on his credit report and application. He also checked the box as “owned” (versus rented). The original loan was underwritten through Michigan Mutual and immediately sold to Wells Fargo. I don’t know how you choose your lenders, but this may be one to consider. Based on the laws we just got lucky that public records were not checked, but we can’t be the only ones, can we?.

        • Kelly,

          It takes a careful underwriter to catch that trick so many miss it and loans go through. But that will be our little secret. :) Wells Fargo technically goes by Mortgagee Letter 09-52.

          Congratulations though. If you can’t tell by my posts and comments, if it were up to me, I’d rewrite these guidelines to make it way easier to purchase after a short sale (particularly for Fannie Mae and Freddie Mac backed loans).


  • Sara from Atascadero, CA, United States:

    Good evening- My husband and I are being relocated from California to Nevada with our current employer. We are attempting to do the best thing for our family while trying to think about our credit and the bank (silly I know).. but I am really concerned with “doing whats right”. The only option we have is short selling, as far as we can tell, but we want to purchase as soon as we can, as I don’t want to have to uproot my three teenage girls. We are the one who found this memo (09-52) and took it to both our realtor here in California and the broker we are attempting to purchase with in Nevada. The broker in Nevada is telling us there is a one year seasoning… and is pretty much saying theres no way to pre-approve or to purchase within a year. Is this seasoning thing legit? Or their way of saying thier company won’t talk to us… do I just need to find another lender?

    • It’s not legit. You need to find another lender. Remember that if you’re trying to use FHA financing for your purchase, should your current loan be a FHA loan, that will be a problem. If it’s not, you’re moving outside of a reasonable commuting distance so, as long as you meet the other provisions of mortgagee letter 09-52, you should be ok. I’m sorry I’m not licensed in Nevada and can’t help.

  • [...] loan under the extenuating circumstances rule after one year or refinance into a FHA loan after 2 years.  In the meantime, that lender makes great fees on giving the loan and an excellent [...]

  • Nicole from Palo Alto, CA, United States:

    Hello- I really like your articles- very helpful. We are trying to figure out if we can qualify for a home loan now that we have passed the 2 year mark of our short sale. We have heard that Fannie Mae allows for a loan after the 2 years seasoning if you can prove a hardship. Our hardship was that I was part of a job layoff when the company was going through bankruptcy. We have relocated to Texas for my job and would like to purchase a home here. So, my question is if banks are really going by the Fannie Mae guidelines on the 24 months with a hardship and if that would qualify? We do have 10% to put down, but what other qualifications must be met?


  • Nicole from Palo Alto, CA, United States:

    I love your articles- very interesting! I am hoping you can help me with figuring out what options, if any we might have. We passed the two year mark from doing a short sale on a house in California. The reason for the short sale was due to a job relocation and then a job layoff as the company went through bankruptcy. We have relocated to Texas for my job and would like to be able to purchase a home as rent is so much higher than purchasing. We have 10% to put down and heard that a Fannie Mae loan may allow a waiting period of only 24 months if we can prove a hardship (I would think a job layoff would be a hardship, but not sure)? Are any banks following these guidelines? And what other guidelines would apply for a Fannie Mae loan if there’s the possibility to be able to purchase after two years?


  • Kristina from United States:

    We are currently in the process of requesting an FHA Preforclosure Short Sale. Our reason is my husbands job relocation as well as him having an accident (had an amputation) which set us back financially. We listed our house back in February 2012 and received an offer in April 2012. We have been current on all payments, even draining our savings account to keep the payments current. Today, Bank of America is saying the FHA guidelines say that we must be 31 days past due to qualify for the short sale. So, if we do not make a payment for August in order to get the short sale approval, BECAUSE FHA says it has to be that way, will a 30 day late on our credit report prevent us from getting into another mortgage without a waiting period? It is clear that our pay history is stellar, other than this process. Are there lenders that would consider this situation of ours, or are we stuck with a waiting period??? It doesn’t make sense to me that FHA will lend to those who have short saled, as long as their payments were current— when FHA will not allow us to keep our payment current in order to qualify. It makes no sense! Any help or guidance to a lender who could help our situation would be appreciated. We would be looking to buy again within a year after short sale if possible.

  • Erik Christensen from Northfield, MN, United States:

    Just had a question about getting a loan after a short sale. Back in 2007 I lost my job and my wife was staying home with our kids. Needless to say we short sold the house and started to rent. My credit score is middle of the road on the lower end. We are now looking to get back into buying a house but first off I don’t know where to start and secondly I don’t know what we may qualify for ie FHA etc. if you have a direction I can start I would appreciate it. I would like to get in with as little possible down as possible!

  • Charles, My ex and i short sold a house one year ago in NM.He lost his job and we went straight to the bank. We were told that due to a flood of defaults that if we did not become delinquent, that they would not even consider it. So we became 120days delinquent on the mortgage prior to the final sell.I have never been late on any other payment and still have other revolving acocunts including a car loan. My credit score is back up to 763. My current and I are interested in buying a house together in a year. He has excellent credit and already owns a house. Do you know how my credit will do? Will I even qualify?

  • Timmy Whitehead from Stafford, VA, United States:

    I have a chapter 7 bankruptcy in 2009. 6/2012 will be two years after discharge date of the Bankruptcy. My wife didn’t need to declaire bankruptcy, so we negotiated a shortsale in 2011. Which waiting period applies. Bankruptcy or shortsale.

  • Brooke from Brentwood, TN, United States:

    Hi Charles,
    My husband and I had to move out of state for his job. We are selling our house in LA, but it may have to be a short-sale (trying to avoid if at all possible) but the value and what we owe are neck-in-neck. We have owned the house for 9 years. Two years ago my husband lost his job and we had a house fire all at the same time (perfect storm). We missed 3 payments during the period of unemployment. We were going to sell then but a realtor suggested we get a loan modification instead. We applied for a loan modification and were told the delinquent payments would be rolled into the modification. It’s been 2 years and we still have not received the loan modification (besides having been “approved” verbally 1 year and a half ago and an impound account set up a year and a half ago as a condition of the modification that we’ve never received). The delinquent payments were all to be covered by the loan modification (with our new loan principal). I am now afraid we received horrible advice. Since it’s been 2 years that we’ve been strung along (watching our property value drop the entire time by about $45,000), I’m guessing everything we were told was also a bit of a scam. We are now trying to make things right by selling the house (as we started to 2 years ago). I am worried however that those 3 delinquent payments from 2 years ago (that the bank told us not to bother with because of the loan modification) will now come back to haunt us if we end up having to do a short-sale. We have been current on payments since that time. Your thoughts on our situation with the 2 or 3 year waiting period? My husband is a Veteran so he is eligible for a VA loan otherwise. The reason I am concerned about the 2-3 year waiting period is that in our new area, it is more expensive to rent that to own (rentals are hard to find). Rents here are $2,500 to $3,300 a month while mortgage payments are about $1,300 to $2,000. We are trying to get ourselves back on track financially by cutting our losses and reducing our expenses…but finding it impossible at every turn. Thanks for your time.

    • Funny you should mention using VA eligibility to buy after a short sale. I’ve written on that topic too: http://iloanhomemortgage.com/uncategorized/buying-a-home-after-a-short-sale-using-a-va-mortgage/. This will really depend on how your payment history reflects itself on paper (namely on the credit report). If you had those 3 late payments and they were from two years ago and that’s how it shows on your credit report (for instance, maybe it shows a 30, 60 or 90 day late from then but you subsequently caught up and things remained current ever since) then you may be in some incredible luck. FHA’s requirements (and VA broadly uses the same ones) require that you not be late on any installment debt or mortgage payments IN THE 12 MONTHS PRECEDING THE SHORT SALE. Because those happened two years ago, that would fall outside the 12 month requirement leaving you eligible to buy right away provided you stay current through the rest of your short sale and follow the other provisions of FHA’s Mortgagee Letter 09-52 (attached to this article and explained in the video). I think you might actually be in luck. The only way for me to be sure would be to process a pre-approval. Because you’re in CA and I’m licensed there, I can do that for you if you’d like. Here’s the way to get that process under way: http://iloanhomemortgage.com/about-iloan/charles-d-dailey/charles-dailey-welcome-letter/.

  • Charles, I am currently in the process of doing a short sale on my property.
    I have never been late on any of my bills. I would like to purchase right away
    If I am able to purchase do I have to stay in the same price range as what
    My current home sold for?


    • Price is less relevant than amenities and property details with respect to complying with the notion that you may not buy a “similar or superior home within a reasonable commuting distance” after a short sale using FHA financing unless you’re willing to wait 3 years. If you want to buy right away, you essentially need to take a step down in housing (fewer bedrooms, baths, square footage, older year built. . . stuff like that).

      • marilyn from Rosedale, MD, United States:

        Hi Charles,,
        We are waiting for the bank approval of our short sale,bpo has been done,don’t know the results yet.As I earlier wrote,we have never been late in our payments and the reason for short sale is separation ( me and my sister).Our realtor was able to find us a lender who prequalified us for $395,000- the contract price of our current home.We originally bought the house for $529,000 but the value has gone down so bad.It. might just appraise for $400,000..The lender says we can buy in the same zip code(by the way he already talk to the underwriterabout this.We went to Ryan homes,a builder here in Maryland and they said we have to try their in house lender which is nvr mortgage first before using other lenders.If they do not approve the loan,then we can use the other lender and still get the incentives they give.There is a gray area though in the fha letter which says that we cannot buy a house that is similar or superior to our sold home.We asked this to ryan homes because square footage wise,our previous home will still be bigger,and more baths but the price of the new home will be more.So they let us run the options that we want and it reached 431,000 ,still with lesser square footage,less bathooms,just vinyl front and our previous home was stone finish and they said they will submit it to the underwriter.You are right the the price is less of a factor and the square footage counts a lot (this is also the analysis of the financial officer of ryan homes- price is not just the determining factor but it helps that it should be lower )but I do not know what the underwriter will say because he/she will be the one to decide.Ryan homes said this is the first time they are handling our situation-short sale due to separation and they are asking me to write a letter of explanation why me and my sister cannot coexist.I plan to give my letter of hardship that I submitted to chase but I read in one of your responses that you recommended to write a new one .Your blogs are very helpful and informative.Thank you very much and I will keep you posted on the results after the underwriter decides.Hopefully it is a positive result.What are your thoughts about this?

        • There are no grey areas in this actually. If you buy a home that’s outside of a reasonable commuting distance from your previous property, you can buy whatever you want. Different underwriters define reasonable commuting distance differently from one another but if you’re buying in the same zip code, you’re buying inside of a reasonable commuting distance. If this is the case, it triggers the similar or superior guideline. So, if you have to buy something that is not similar or superior to your previous property, that essentially means that you need to take a step down in housing. New construction is a big obstacle. I’ve only been able to get one done in my career. It’s a big obstacle to overcome in proving the step down in housing. Almost all of the other elements should be steps down but definitely the big ones: square footage, bedroom count, bathroom count, level of finish and acreage. If you were my customer, I’d tell you that I’d try but I’d give it 50/50 odds and do what I could to dissuade you from taking such a risk. Good luck though. I do hope it works!

          • marilyn from Rosedale, MD, United States:

            Hi Charles,
            Thanks for sharing your thoughts about our situation.And yes,You are exactly right,ryan homes just want us to apply for the loan and see if the underwriter approves of it.Like you said and I agree it will be a 50/50 chance.Thank you very much forvtakingvtime responding to my inquiry and have a wonderful holidays!

  • Julie from Murrieta, CA, United States:

    Charles, hoping that you can help. My husband and I are getting ready to shortsale our home. The hardship will be that my husband has taken a new job more than 1000 miles from our current location. We have never missed a payment and don’t plan on missing any throughout the shortsale. Our other credit is excellent over 800, no lates, ever. We have no other debt and excellent income. The house we want to buy will be much smaller than the one that we are selling. We want to purchase immediately, would have to be FHA and we only will have 3.5 to 10% to put down. I keep hearing that we will need 20% down, as the PMI companies will have no part of us getting a loan. Is there a minimum that we need to put down? My R/E agent in Northern California, where we want to buy, is basically ignoring us and saying that there is no way that we will get a new loan immediately, only after two years. I think we need a new agent. Thanks for any advice that you can give!

  • Mr. Dailey, We have not been able to sell our home and our realtor has been trying to convince us to short sale. We currently have a conventional loan owned by Bank of America. My husband has an hour and 10 min commute to and from work everyday. We are trying to get back to the area he works because the commuting and house payment forced us into a tidey sum of debt on credit cards and caused me to have to take a part time job. We have not missed any payments on anything ever! ( I do have a partime job waiting for me in the same field in the area we need to back to) My husband is eligible for a VA loan. Will we be able to buy right away with a VA or do we have to wait? There is no way we can save 20% for down payment on FHA. PLUS>>I have 3 dogs and fear nobody will rent to us. I am terrified. Thank you for your advice :(

  • [...] Sale is an Excellent Mortgage Credit Risk Tweet While lenders will admit that it’s technically possible to provide mortgages to homebuyers who recently had a short sale without a waiting period, most [...]

  • Marci from Port Saint Lucie, FL, United States:

    My husband and I did a short sale due to us separating. Our payments were current and our credit is around 700
    We have reconciled our marriage and we can’t get a Loan on another house. We were promised we could get a loan
    And have list alot of money trying to buy a house. both tomes they said no it was too soon from our short sale. We live in florida can you help?

  • [...] in short, a prospective homeowner can buy after short sale with FHA right away if there are no late payments and other nuanced conditions are met and after 3 years if there are [...]

  • [...] in short, a prospective homeowner can buy after short sale with FHA right away if there are no late payments and other nuanced conditions are met and after 3 years if there are [...]

  • [...] in short, a prospective homeowner can buy after short sale with FHA right away if there are no late payments and other nuanced conditions are met and after 3 years if there are [...]

  • [...] in short, a prospective homeowner can buy after short sale with FHA right away if there are no late payments and other nuanced conditions are met and after 3 years if there are [...]

  • Mary Ann from Ceres, CA, United States:

    My husband did a short sale before we got married. He went through many letters and phone calls with the bank to get some type of options (loan modifications, etc.) to help him out in his 5 year no interest loan. Unfortunately, the bank stated there was no options at that time and they did not know when they have any. My husband was always on time with his mortgage payment and never missed a payment until the short sale which was requested through his real estate agent. She said in order for the short sale to be process he has to be at least 1 payment behind. He put the house up in March 2009 and closed the home in May 2009. He has been told since the house was sold quickly and was not passed 60 days, in foreclosure or in default that he could possibly buy a home now and not wait the 3 years. A real estate agent pulled his credit and did the numbers and he got pre-approved. We have heard many stories about buying a home after a short sale and it’s becoming real confusing. One person says this and one person says that. I just want to know one answer. The right one. We want to buy home now. Can we?

  • Amy from Rockford, IL, United States:

    Our short sale took place in April 2009 in Nebraska. We had to move for a job relocation, so decided to do a short sale because our home had been on the market for 2 years. We fell behind on our mortgage and ended up closing in April 2009. Our credit dropped to low 650. We had always had great credit and had never been late on any payments until our short sale. We are now wanting to buy a home in Illinois, and have had no luck with getting a FHA loan. Is there anything we can do to speed up the process, or do we have to wait more then 2 years to buy a home again?

  • Nancy from Rotonda West, FL, United States:

    I find this article very interesting because I did a short sale in Aug 2010. Never late on any payment 30 plus years including the short sale. No bank will even look at me even though my short sale was due to an illness in the family. Credit score just above 700.

  • Paul Michel from Citrus Heights, CA, United States:

    Well where to start…To make a long story shorter I purchased a home with my then fiance for about 411K, subsequently she left and I was stuck with the house and 360K mortgage, a terrible loan (pick-a-pay) and it was coming current at the sum of 3000+ a month which was not doable for me. My bank agreed to do a short sale. I thought I was going to be unable to purchase again for several years. After doing some research I found this geeky guy Charles Dailey. Just so happens Charles is licensed in California along with several other states.. Well to sum it up I had good credit to begin with, never missed a payment on my mortgage and was current for the last 12 months on all other bills. Charles knew the rules better than the people who made them. Every time they said no he sent them a strongly worded email stating the rules and telling them to do their homework, because it was obvious he had. My short sale closed on 5-7-10 I stewed around for a few months, my first contact with Charles was on 9-3-10, and I closed on my new home 11-22-10. I cant give enough thanks to Charles for the work he put in and what he did for me.

  • Rose from United States:

    As a person who has just gone through a shortsale, I found this posting very interesting. I had to sell my home as I was moving out of the area, so it was short sold. The only thing is that I was a few months late at the time I short sold it. My credit score today is 656, even though the short sale happed last July. I was hoping to get my credit score up and buy a new home in my new location by next July. What do you think my chances are in doing this? I think my original loan was conventional and I would be going VA with my next loan.

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