How to Get a Home Loan After a Short Sale
A short sale occurs when your lender agrees to work with you to sell your home for less than you owe on the mortgage. Once the short sale is complete, a record of the transaction appears on your credit report and is visible by any future lenders. Although, from a lender's perspective, a short sale is slightly better than a foreclosure, though it still has a substantial negative effect on your credit score. This hinders your future buying power. Going through a short sale, however, does not prevent you from ever being eligible for another mortgage loan.
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Instructions
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Consider the amount of time that has passed since your short sale. If your short sale occurred more than seven years ago, the short sale will no longer appear within your credit record and will not influence your loan eligibility. Most lenders prefer to see that a short sale occurred at least two years ago before sponsoring a mortgage loan for an individual.
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Check your credit score and report. Because a short sale has a negative impact on your score, it is imperative that you know what your score is and what other information appears on your credit report before applying for a mortgage loan. The majority of lenders will look at your FICO score rather than your consumer credit score, known as a Vantage score. You can purchase your FICO score online (two links in the Resources section).
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Dispute any negative information on your credit report that you do not recognize, is inaccurate or is obsolete. You can pull a free copy of each of your credit reports from annualcreditreport.com once a year. All credit report disputes should be directed to the credit bureau that is reporting the inaccurate item.
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Prepare a down payment. Getting a loan without providing a down payment is challenging, even for buyers with good credit scores. Providing a down payment on your new mortgage loan is an important part of qualifying. The amount of the down payment you must pay will range from 3.5 percent to 10 percent of the mortgage loan, depending on the type of mortgage you apply for.
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Visit the banks and credit unions in your area to determine whether you are eligible for a new mortgage loan and, if so, what the interest rate will be. The more time that has passed since your short sale, the lower your interest rate is likely to be.
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Tips & Warnings
Government-backed mortgage loans, such as loans provided through the U.S. Department of Housing and Urban Development, have less stringent credit and down payment requirements. These loans may be easier for you to qualify for after a short sale than a traditional mortgage loan.
Consider refinancing your home at a lower interest rate once the short sale no longer appears on your credit report.
Some lenders may be willing to lend to you immediately after a short sale. Should this occur, expect to pay extremely high interest rates to offset the lender's risk.
