Buying a house after a short sale: a San Diego comeback

What is a short sale?

A short sale is when you sell your home for less than you owe, and your lender agrees to take that smaller amount. The lender has to sign off first. Without that sign-off, the sale can't close, because the buyer's money doesn't cover the loan.

Lenders usually treat it as a serious credit event. You borrowed one amount and paid back less. It shows up on your credit report, and each loan program sets a waiting period before it backs a new mortgage for you.

That waiting period is the clock people ask me about. Every program runs its own.

How long after a short sale can you get an FHA loan?

According to HUD, FHA generally doesn't allow a new FHA-insured mortgage within three years of a short sale. The rule is in HUD Handbook 4000.1. There are exceptions, and two matter most:

• The short sale was caused by documented extenuating circumstances beyond your control, and you've re-established good credit since.
• You were current on the mortgage for the 12 months before the sale.

HUD is clear about what doesn't count. Divorce isn't an extenuating circumstance. Neither is being unable to sell because of a job transfer.

If you think an exception fits you, bring the papers that prove it. I can't argue a file on a story alone.

Is the wait shorter for a VA or conventional loan after a short sale?

Sometimes. VA guidelines let a lender disregard a short sale in lieu of foreclosure that was finalized more than two years before closing. Between one and two years, VA says approval probably isn't possible unless you've used credit well since and the event came from verified circumstances beyond your control.

Conventional loans sold to Fannie Mae run longer. Fannie Mae's Selling Guide sets four years after a short sale, or two with documented extenuating circumstances.

So one short sale can mean three different waits. That's why I pick the loan type before anyone picks a house. If you've served, here's how your VA entitlement works.

How did a San Diego couple buy again three years after their short sale?

This couple had done the hard part before they ever called me: every payment since the sale had been on time, and their score had climbed back. What they didn't have yet was time.

We could have tried to apply early. We didn't. Instead, we picked the purchase date on purpose, so they'd be past FHA's three-year mark when the file went in.

That plan took the guessing out of it. They closed with a small down payment, and nobody had to explain why the file landed a few weeks short.

Here's what I took from it. Timing is part of the loan. I'd rather plan a date with you than fight a rule after the fact.

How do I check my credit before applying again after a short sale?

Start with your reports. According to the FTC, you can get free reports from Equifax, Experian and TransUnion every week at AnnualCreditReport.com. Scores and specialty reports aren't included.

Read all three. Find the date your short sale shows as finalized, because that's what your clock runs from. Look for accounts you don't recognize or late payments you know you made on time.

Found a mistake? The bureau reporting it is who fixes it. That isn't something I can change for you, but I can tell you whether it affects your loan.

What if my bank says no after a short sale?

A no from your bank is one lender's answer, not the market's. A bank can only use its own rulebook. As a broker, I shop one file across a network of wholesale lenders. Different lenders want different deals.

If you're self-employed, maybe your accountant saved you on taxes, and now your returns show less than you make. Your tax returns aren't the only way to prove income. We close bank-statement, asset-based and non-warrantable condo loans that retail banks turn away. Here's how bank-statement loans work.

Before you look at a single house, try the free calculators on our site. In a few minutes they give you a rough estimate of a price range to explore and what the payment actually looks like, with no credit pull. Then text me and I'll run your numbers. No pressure.

My rule is simple. Make every payment on time while the clock runs, and see a broker before it runs out, so your purchase date is planned and not guessed. When offers come in, compare two Loan Estimates line by line.

Questions people ask