The prospect of losing your home is fraught with questions:
“How can I get the right help short selling my home?”
“What if my bank thinks I am strategically defaulting and decides to just foreclose on me?”
“What if they do let me short sell my home but then decide to pursue me for a deficiency judgment?”
“Can I short sell my home after filing bankruptcy?”
Having consulted over a hundred clients considering their options to foreclosure, these are common yet valid concerns. Short selling a home can be very emotional and stressful… and rightly so. No one buys a home with the intention of walking away from it a few years later. However, one question I rarely get but is equally important is, “How long do I have to wait after a short sale before I can buy again?”
It can seem, caught in the middle of a financial maelstrom, that this is the least of your worries. Worrying just how you will make it another week may be all you can handle. But, I will tell you, you will make it. Having been in that tsunami myself and wondering what the hell am I going to do, I can tell you you will get through and you will recover. You should therefore give some thought to how to position yourself to get back in to the market once the storm has passed.
So, here are some guidelines to remember as you work your way through financial recovery:
- Purchasing a home using FHA financing requires a 2 year waiting period from the date you short sold your home. You must also have a credit score of at least 640.
- Buying a property using conventional financing (putting down 20% or more) requires a 3 to 4 year waiting period from the date of the short sale and a credit score of 720.
- A short sale is going to reduce your FICO score by 100 to 160 points, depending on the number of your score before default. As soon as the short sale is completed, your score will begin to improve. Make sure there are no collections or judgments against you. If so, they could have been attached to your property and should have been paid via the short sale. Your short sale specialist should have negotiated settlements with your creditors.
- If you went late on your credit card or installment loan payments, contact those creditors to make arrangements to bring them current or to settle. Try getting them to report to the credit bureaus ‘current, paid as agreed’; it will do wonders for your FICO. And the sooner you resolve your credit debts, the more time you will have for that score to improve.
- Keep your debts low. Including your mortgage when you buy again, your total debt shouldn’t exceed 45% of your income.
In the meantime, find suitable housing and save your pennies. Sure, becoming a ‘renter’ is not the most desirable place to be, but remember you just walked away from thousands– perhaps tens of thousands– of dollars of mortgage debt and have now put yourself in a position for a fresh start.
Over the next couple of years, the housing market will most likely continue to struggle to regain its’ footing, so expect home pricing to remain affordable. Interest rates should still be low. Maybe not 3 1/2% low but low by historical standards. Planning ahead even now will go a long way to putting you in a position to once again realize the enjoyment and benefits of homeownership.