A short sale will negatively impact your credit in two ways. One, your FICO score will drop, which will affect your ability to acquire new credit and, two, after a short sale, banks will require a minimum waiting period in most (though not all) cases before allowing you to qualify for a home loan..
Standard Short-Sale Waiting Periods:
Conventional loans require a 2-year waiting period when putting 20% down, 4 years when putting 10% down, and 7 years when putting less than 10% down. FHA loans require a 3-year waiting period after a short sale unless the borrower had NO mortgage late payments leading up to the short sale. You lucky folks with NO mortgage late payment can qualify for FHA financing immediately following a short sale.
No Minimum Short-Sale Waiting Periods:
If your short sale was the result of what is called “financial mismanagement,” you will most likely not qualify for financing without a set waiting period. But if you have suffered medical issues or other extenuating circumstances, you may not have to wait to qualify for a mortgage.
Here are three real examples of buyers qualifying for a mortgage immediately following a short-sale and foreclosure:
#1 – Buyer co-signed for his goddaughter on her mortgage. The goddaughter defaulted on the loan. Since the buyer was only a co-signer and never lived in the property and was technically not responsible for the short sale, he qualified for a mortgage with no minimum waiting period. The short sale was completed in December and he closed on his property two months later in February.
#2 – Buyers purchased a property that burned down due to a brush fire in the neighborhood. The city would not allow the property to be rebuilt. After 18 months of legal wrangling with the city, the buyer had no choice but to short-sell the property. The buyers qualified for a new mortgage with no minimum waiting periods.
#3 – Buyer had a messy divorce and started paying alimony and child support payments. This increased his monthly liabilities dramatically and he could not longer afford the house payment. His divorce of 17-years was considered a one-time event and he qualified for a new home loan right away.