New Home Loan After Short Sale Or Foreclosure?

short-sales road sign

Myth: One can get a new home purchase loan one or even two years after a short sale.

Fact: One cannot get a new home purchase loan until three years after a short sale or foreclosure, and this requires a proactive approach. There are rare exceptions, but these are very severely limited to Real Estate Owned properties of Fannie Mae, Freddie Mac or FHA and loaded with red tape with no guarantees.

Myth: A deed-in-lieu of foreclosure or a short sale is not counted as a foreclosure.

Fact: A deed-in-lieu of foreclosure and a short sale is still a foreclosure and shows as such on your credit record whether the ‘F’ word is used or not.

A few months back I asked an underwriter at one of the top five banks in the country to explain to me their qualifications for a new mortgage following a credit disaster. We define a credit disaster as a short sale, deed-in-lieu of foreclosure or foreclosure. Following is what she wrote me:

  • “Hi Jim, It is 36 months for an FHA following a foreclosure/short sale.
  •  A minimum of 1 trade line either installment and/or revolving that has been active for at least the previous 12 months.
  • No installment or revolving credit 60 days or more past due within the previous 24 months.
  •  No public records such as, judgments, liens or foreclosures within the last 3 years. 
  • No collections or charge-off accounts in the last 24 months.
  • No late payments on housing payment (mortgage or rent) within the last 12 months.
  • No more than 2 revolving payments 30 days past due within the last 12 months No late payments on any installment credit within the last 12 months.”

I do not object to short sales, per se, however if the seller is motivated to do a short sale based solely  on the belief there will be a new home loan available in a year of even two, the seller is mistaken or has been mislead.

A short sale is useful for relocation and for simply bringing an end to a bad situation. Either allows for a new start. By drawing line to end a bad situation one may begin credit recovery.

Note: Readers may substitute foreclosure for bankruptcy and vice versa as similar results and actions are required to rebuild credit following either occurrence.

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Art Credit: Google Images

Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | January 15, 2011
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

2 comments on “New Home Loan After Short Sale Or Foreclosure?

  1. jamesspray says:

    Regarding “Relocation” or cash for keys, this only applies to a property currently owner-occupied. If the property has been abandoned by the owner, the relocation fee is not available.


  2. […] most cases, the earliest one will be eligible for a new mortgage following the conclusion of a short sale is three years, […]


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