How to Buy a House After Short Sale
Did you short sell your property and are looking for a new home? If so, then you are definitely not alone. Most people are unaware of how soon they can purchase a home after a short sale, mainly due to fear of the effects on their credit score. Rest assured that buying a home after a short sale is possible.
What is a Short Sale
The terms “short sale” refers to when a homeowner sells a property for less than the amount owed on the home loan. For more information about short sales, visit our short sales webpage.
Rebuilding Your Credit Score
When you short sale your property, you receive a default report on your credit - this default negatively influences your credit score. When you go to secure a mortgage after short sale, a low credit score can get in the way of obtaining approval. Therefore, it is important to strategically strive for a credit repair before buying a house after short sale.
Since there is a two year waiting period after short sales before you can qualify for a conventional home loan, this time can be used to help improve your credit score. When rebuilding your credit score, you first have to know where your credit score stands after a short sale. Therefore, obtain a free credit report (you get three per year) from Experian, TransUnion, or Equifax first. After you know your credit score it is essential to start actively rebuilding your credit score. To learn more about improving your credit score visit our webpage titled “How to Build Credit Scores Efficiently”. Rebuilding your credit score can help increase how quickly you can secure a new home loan after a short sale.
Getting a New Loan after a Short Sale
As mentioned above, you have to wait two years after your short sale before you can quality for a conventional home loan. Once your two years are up, if you have increased your credit score to a lender-approved standard, then you can typically obtain a home loan with a 20% down payment. If you wait four years, then you can expect at least a 10% down payment. If you purchase a new home after waiting seven years, you may qualify for a home loan with less than 10% down payment.
When a lender will approve you for a new home loan depends upon a variety of factors with your credit report after the short sale took place playing a major role. Other factors such as consistent employment and assets also come into play. In short, you can quality for a new loan after a short sale in as little as two years.
Becoming a Home Buyer Again
Once you have repaired your credit score and you are pre-approved for a new home loan, you can start searching for your next home. The approval process is the hardest part for those who have faced short sales - from there the remainder of the process is the same. Simply find a home of interest, make an offer on the property, and negotiate with the home seller until an agreement is reached. If you reach an agreement and all things go according to plan, you will soon be at the closing table and a homeowner all over again.
When trying to figure out how to buy a house after a short sale, it is important to understand that there is a two-year waiting period and that the time it takes after this two years will vary greatly. One way to help increase your chances of being able to secure a home loan soon after the two-year requirement involves actively working to repair your credit score. Fortunately, homeownership can still be a reality - even if you had to short sell your property in the past.