Although the availability of new mortgages to borrowers who have previously had mortgage debt forgiven in a short sale has become limited in the last year, options are still available, especially if they did not go delinquent on their old mortgages before the short sale.

A short sale is a transaction where the seller does not make enough by selling their house to pay off their mortgage(s) and doesn’t have enough cash pay the difference, and where the mortgage holder(s) agree to forgive that difference. (A short refinance (aka short payoff refi or short refi) is the parallel for a refinance, and is treated the same way.) Historically, short sales have been reported on the seller’s credit report the same way that a foreclosure would be, often making it impossible for that seller to get a mortgage to buy a new property until at least 5-7 years had elapsed.

As the number of short sales has been climbing in response to falling home prices during the recent recession, however, lenders have become more forgiving of short sales in terms of how they are treated on a credit report. More specifically, they now usually distinguish between “non-delinquent” short sales, where the seller was current on all payments but simply needed to sell the property (e.g. because of job-related moves) at a time when the market happened to be down, and where their mortgage holder forgives the excess portion of the mortgage without requiring any repayment of that excess (e.g. by filing a deficiency judgment against the seller), and “delinquent” (or “pre-foreclosure”) short sales, where the seller had fallen significantly behind in their payments before the short sale was concluded or where the mortgage holder filed a deficiency judgment against the seller .

After a non-delinquent short sale, most lenders are requiring at least a 1 year waiting period before a new mortgage can be obtained; some lenders (including multiple of the lenders through whom we can broker loans), however, are now allowing those sellers to get new mortgages as long as they meet all of the other credit requirements for the new mortgage, without any special restrictions or waiting periods. (Note, however, that having a short sale of any sort on your credit report does negatively affect your credit score, and that lower credit score is the one that the borrower would have to use to qualify and that would be used for determining rates.)

After a delinquent short sale, on the other hand, lenders currently are usually requiring a waiting period of 4 years after the short sale before a new mortgage can be obtained; some of our lenders do allow mortgages as early as 2 years after a delinquent short sale if there are significant extenuating circumstances that caused the delinquency and the borrower can document why those circumstances are not likely to recur.

If you’ve had the misfortune of needing to have a short sale, and are interested in exploring your options for a new mortgage, contact us and we’d be glad to review your options with you. And if you are considering a short sale or loan modification now, keep in mind that your future plans to buy another home some day could be affected by how you structure your loan renegotiations today, so it’s important to have your lawyer, agent, and/or future lender in on the discussions to make sure that decisions you make now don’t come back to bite you a few years down the road. Contact us and we’d be glad to set up an appointment to discuss your situation, and refer you to the correct combination of agent and/or lawyer to help you with your short sale or loan modification.

Possibly related posts (automatically generated):

1. FHA announces new guidelines for post-short-sale mortgages
2. Lease/Purchase: An Alternative For Buyers Who Have Recently Done A Short Sale
3. Short Sale & Foreclosure Resources for Buyer Agents
4. What is credit?
5. Mortgage modification overview

Tags: purchase, short-sale