If you owe more than your home is worth and you want to move, a short sale is a better option than foreclosure. In a short sale, a house is sold for less than the mortgage balance and the lender agrees to accept the sale price as payment in full.
Will You Be Able to Take Out a New Mortgage?
A short sale may not do as much harm to your credit as a foreclosure, but it can still cause your credit score to take a significant hit. Depending on where your score winds up, you may be unable to qualify for some types of loans, or you may only qualify for a mortgage with a high interest rate.
If you have a short sale on your credit report, lenders will want to be careful before they agree to grant you a new mortgage. You may therefore have to wait a period of time before you can take out another home loan.
How Long Will You Have to Wait to Buy Another House?
If you want to borrow through the Federal Housing Administration, you may be able to apply for a loan immediately after a short sale if you were not in default on your mortgage at the time of the short sale and you made all your payments on time for the 12 months before the sale. If you were in default at the time of the short sale, FHA will require you to wait three years before applying for a new home loan, unless you defaulted because of extenuating circumstances, such as a job loss, divorce, or the illness or death of a family member. In a case involving extenuating circumstances, you may be able to get another mortgage in one year.
Before you can take out a new mortgage through the U.S. Department of Agriculture, you’ll probably have to wait three years. That applies in most cases, even those involving extenuating circumstances.
The waiting period for a Veterans Administration loan is generally two years. If you paid your mortgage on time before the short sale, you may not have to wait at all.
For a conventional loan, you may have to wait two years if you can put 20 percent down and the short sale occurred because of extenuating circumstances. You will have to wait longer if you can’t put down 20 percent.
A non-qualifying mortgage may not have any waiting period at all. You may have to make a larger down payment and pay a higher interest rate, however.
How to Qualify for a New Mortgage
If you have to wait before applying for a new home loan, use that time to work on getting your finances in shape. Focus on improving your credit score and saving money for a down payment.