In most of the cases, homeowners worry if they’ll be able to get a mortgage after short sale. This is because after short sale, their credit is hurt and it lowers the credit score. With low credit score, it becomes hard for homeowners to obtain a new mortgage. Now, short sale occurs when the lender agrees to the pay off of the loan for much less than what is owed. However, it is not that all lenders agree to go for a short sale agreement. Though short sale does hurt one’s credit, it is still possible to qualify for a new mortgage after a couple of years. Within the time period, you will have to improve your credit so as to easily get qualified for a new mortgage.
Tips to obtain a mortgage after short sale
Tips – 1 Rebuild your credit
Short sale is actually going to affect your credit score. This is because, various factors are taken into account while calculating the credit score and determining the effect of short sale. The different factors that are considered are like (a) how good your credit score was at the beginning? (b) How many late payments were made? (c) Were their bills paid on-time? Short sale is most likely to be reported as settled account which has been paid for less than what is actually owed. This is going to negatively affect your credit report.
So, you will be required to improve your credit. In order to do, that you will be required to go on making on-time payments on the debts that you currently have. In addition, you can also try to get a secured credit card and use it to make small purchases. Then, you will have to go on making on-time payments on this. This is going to help you in improving your credit with time. However, before getting the secured credit card, it is important for you to check if the creditor reports to all of the three credit bureaus.
Tips – 2 Wait for a certain time to become eligible for new mortgage
Short sellers who have experienced a foreclosure should wait 5 to 7 years to become eligible for a new mortgage. The time period may depend on certain situations such as job loss, complex health problems, divorce, death of a wage-earner, etc. On the other hand, borrowers who are able to remain updated on their mortgage may be able to obtain a new mortgage quickly. If the borrower is far from their payments, then he may have to wait for 2 to 3 years or 12 months in some cases for obtaining a mortgage through FHA “Back to Work” program.
The time period may vary depending upon the type of loan and down payments. To get a conventional home, short sellers must wait for a certain time.
1. 2 year waiting period for 20 percent down payment option.
2. 4 year waiting period for 10 percent down payment option.
3. 7 years waiting period for below 10 percent down payment option.
Tips – 3 Know about Fannie Mae and FHA requirements in detail
Most of the people stay confused regarding the details of loans, foreclosures, short sale, the consequences and the ability to get new loans because various changes have occurred in the housing market in the last few years. Both, FHA and Fannie Mae have changed the requirements for getting a new home loan. According to the FHA in case of a short sale,
1. If the borrower has been making payments on-time, he/she may have the eligibility to get a new mortgage as long as short sale happened due to various difficult situations.
2. If late payments have been made by you, or if you are not even able to demonstrate the difficult situations, you may have to wait for 3 years time even before the new FHA financing can be considered.
Tips – 4 Monitor your transaction
It is an essential task for all borrowers to know if short sale is correctly reported in their credit report. Try to follow these following steps to monitor your credit report in order to get a better credit score.
- Try to get a confirmation letter from your lender that the loan has been closed. Moreover, this information should be mentioned in the short sale approval letter.
- Borrower should forward a copy of lender’s letter to the 3 major credit bureaus.
- When you’re ready yo buy a new home, then try to get pre approval for the home loan. Thus, you will have enough time to solve issues related to your credit report.
- Do not forget to review your credit report each year. If you find any error in the report, then dispute the inaccurate information in your credit report. Send a dispute letter to the credit bureau.. You can get free credit report once in a year from the credit agencies as per your request.
Conclusion
There are various other factors which may be considered by the lender while giving out a mortgage. Still, if you really want to avoid all of these hassles, it would be better for you to try and maintain the mortgage payments. If that won’t be possible for you, you can try to refinance your mortgage so that you are not required to lose your home anyhow.