***Mortgage After a Short Sale

Updated on August 07, 2012
A.G. asks from Royal Oak, MI
8 answers

A few years back my husband was laid off while I was working on my Masters Degree. We had a baby and no income. We had to short sale on our home. It will be 2 years this month since the short sale actually went through. Things have been good since then, we are building our credit back up, I graduated and am working and he has been working as well. We've been told that 2 years is the minimum that we'd have to wait after the short sale to be able to buy again. However, a family friend has a mortgage company and his underwriters are sticklers when it comes to short sales and such and have not given a loan to anyone until 3 years past the short sale date. We really don't want to wait until full year. We are hoping to buy in April. Any suggestions? How do we shop around for a mortgage? If we want to buy in early spring when should we get pre-approved. TIA


I'll give a little more info. We are a legit married couple, no child support =) We have credit cards and have been working hard on paying down the balances. One is paid off and hasn't been used in a while and we paid off one vehicle 9 months ago. No late payments on anything since the house in 2009. We always pay more than the minimum balance. We have both been at our jobs for over a year. Our mortgage guy pulled our credit right after the new year and told us what things to dispute and get fixed so that is taken care of. My closest friend just purchased a home, not that great of income, not that great credit score, did a deed in lieu of foreclosure 3+ years ago, 3% down, 4.2% interest rate. I don't know how different the deed in lieu is than a short sale. The "hurry" is for a couple of reasons. Yes, interest rates are at a low-how do I know they will still be this low in another 12 months? The housing market is going up, house values are rising and people are having bidding wars on houses in the areas we are looking to buy. My DD will start kindergarten Fall 2013 and that is the biggest reason. We WILL be in our house before she starts Kindergarten, lol. Maybe that sounds "stupid" to some people but I moved around my whole life bouncing from school to school, that is not going to happen with my kids. We want to be all settled in before school starts next Fall, so even if we don't buy until July it will still be just under 3 years.

I guess what I was more looking for was opinions on getting a mortgage through a bank (like our regular bank) or private mortgage company, small vs big private company, etc. My mortgage guy just emailed me and told me the preapproval is good for 120 days. We are on target for having 10% down with cushion room by April.

What can I do next?

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answers from New York on

The banks have learned their lesson... why are you in such a hurry to purchase again? There is a reason why they want to wait a third year... you need "three data points" to create a trend pattern, meaning that having "two good years" does not create an "upward financial trend" with respect to your income and credit.

What you "want" to do is irrelevant. The BEST thing you can do is work your tails off to reduce all of your debt (including "good debt") and continue renting to build-up your down payment. Make sure you have enough $$ left in the bank to cover 3-6 months of your bills so that you can cover your living expenses in the event of another lay-off. This economy isn't turning around, so having a nest egg will serve you in the long run.

As for a pre-approval letter- they are typically only "good" for 90 days. We built our home seven years ago and I remember getting our preapproval about a month before the builder's estimated completion date only to go through the process again 4 months later because the pre-approval was no longer "valid". Each lender may be different, but you could look into a prequalification to see "what you can afford" at any time.

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answers from Dallas on

We got our approval right before we started looking. (I think they are goo for 60-90 days. I don't remember, we purchased within 30 days.)

You need to wait 3 years, I'm sorry to say. It does take that long to prove improvement. (Krista was right on, with her explanation of points.) You MIGHT be able to get a mortgage at a very high rate. (Or, a less then wonderful company/lender. I consider that a risk, in itself. We are at historically low rates, why would you want to do that to yourself, and not just wait another year?

It's just not smart (sorry) to try purchasing a home with any remaining substantial credit card or other debt. (No idea if you have debt.) Do you know your credit score? When we bought our house 3 years ago, our lender (and most others) required a 620 or above credit score. We had a higher one, thank goodness. The requirement was 10% down, as a minimum. Now, there is a preference for FICO scores in the mid 700's, and minimum down payments of 20%. FICO introduced new mortgage credit score requirements within the last 2 months, that might make it harder for folks in your situation.

Do you have a 20% downpayent in savings...minimum? Is your income to debt ration small. (This is HUGE, in getting a mortgage! If it's a wide ratio, you can't even hope to get a mortgage.) Do you have a good credit score, that has been that way for more then a few months? Have you been at your respective jobs more then a year? Have you ever been late on child support payments (if you have them,) rent, loans, etc? Those factor into the way of FICO scoring.

My point is, you need to wait a year. Really, you have to. I'd be shocked if anyone gave you a mortgage after two years. If they did, you would have a very high interest rate. What's the hurry? What you WANT, is not wise, or very doable.

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answers from Los Angeles on

Open an inveatment account and put money in it. Invest in stocks of companies that pay good dividends, 6% or more. By the time April comes you should have a good amount of money in it. That will show lenders the improvement in your ability to borrow money and your ability to pay it back.

Do something proactive to help yourself.
If you want to borrow and the monthly payment on the loan would be $1000, the your deposit into the stock account should be at least $1000 per month. That shows the loan companies that you can make at least a $1000 per month payment.

Pay off your lesser bills and don't buy anything on credit (loan) until you get the loan you are looking for. Pay off your credit cards. Make your income look way more than you need to pay your bills. That drives your credit score up. The higher your credit score the better your chance of getting a loan. Our credit score is in the low 800's and we get loan offers in the mail and via telemarketers on a weekly basis.

Good luck to you and yours.

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answers from St. Louis on

You can probably be approved by a less than reputable company at a much higher rate or wait. Everything is based on risk and regardless of who you go to you are high risk. I am saying this because you may find a company who says I will give you 4% and then put in so many fees and points your effective rate is 7%.

So what I am saying is you will get the same thing regardless of who you go through.

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answers from Charlotte on

A., keep working hard on paying off those credit cards. That is SO important. I'm not going to try to give you intricate mortgage advise - others know more about that.

I DO want to say that you should not touch the stock market. Just because one of these posters invests his own money like this doesn't mean it's a prudent thing for YOU to do. Dividend stocks paying 6% are not sure fire companies - they are not the safest companies. If they were, they wouldn't have to pay 6% dividends to get people to invest. Even the safe companies that pay smaller dividends are affected by gyrations in the stock market. You could buy a stock and then by the time you have to sell it in order to buy the house, the market or that particular investment could be lower in value and you would LOSE money. That 6% is not important in the short term. Paying off your debt and keeping your principle safe so that you don't blow your chances of buying the house are what you need to focus on.

Stock advise should be given by someone who has a current Series 7 license or is a money manager. Not from strangers who don't know your situation. Look up the "Prudent Man Rule" and "Know Your Customer".

Good luck,

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answers from Phoenix on

I think it's great to have a goal and a plan, but I think it's also good to be realistic & flexible about your expectations. Good luck!!

1 mom found this helpful


answers from San Francisco on

Most lenders out there do require 3 years after the title transfer date before you can qualify for another mortgage. I've only seen a couple new home developers offering purchases after 2 years. You could shop around and ask these questions to different lenders without them pulling your credit. As with what the others have said, you want to pay down credit and you do need to have money saved for the down. FHA is 3.5% and conventional is a minimum of 10%. I just saw a lender add in our Sunday real estate section offering an 80/10/10. 80% first, 10% second and 10% down this avoids you having to pay PMI insurance if you don't have 20% down. I haven't seen these loans since 2007!

Make sure you don't have any recent lates, you also need a minimum of 2, preferably 3, credit cards or loans with current payment activity of 1 to 2 years at the time you apply. So even if your credit cards are paid, keep them open and charge $20 a month on them and pay them off every month. This will help your score as well. If you have car loans or student loans in repayment they count as well.

I've seen people get denied because they paid cash for everything and didn't have any monthly activity on their credit cards and they had no car loan, etc. You can have open 0 balance accounts and FICO will give you a high 700 score but if there is no payment history you will get denied.

Also go to annualcreditreport.com and get a copy of both of your credit reports to make sure there aren't any errors on it. Dispute any errors that you may have, that way there are no surprises when you do apply. Do NOT waste your money paying for a score, the score you get online isn't even close to the real FICO score that an institution pulls.

Good luck finding a lender before the 3 year mark, in the mean time maintain good payment history and save save save. =)

1 mom found this helpful


answers from Chicago on

Wells Fargo lets you purchase 2 yrs out of a short sale. Larger banks take bigger risks.

1 mom found this helpful
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