Short Sale then Immediately Purchase? - YES

As a Realtor who has been heavily involved negotiating short sales over past years, one of the questions that I get asked quite often from potential short sale sellers is, “How long will it take before I will be able to buy a home again?” The answer to this question is specific to the seller and does not have any clear cut answer as there are quite a few variables to consider when figuring when someone will be able to purchase a home after a short sale. However, there exists a misconception of sorts in the real estate market in that a short sale will prevent a subsequent home purchase for at least two years. While this is true in some circumstances we wanted to take a few moments this month to highlight a program backed by the FHA that will allow a home purchase directly after a short sale.

The biggest guideline that must be met to enable you to participate in this program is that you MUST remain current on your mortgage, including no late payments, and on any installment debt payments (credit cards, car loans, etc). If, within the past 12 months of your new purchase loan application date, you have not been late on your mortgage or any installment debt payments then you may be eligible for an FHA loan for purchase.

Now I understand that for some this may be difficult as oftentimes a short sale results from the inability to make the payment in the first place. But for those who have been making their payments and have just experienced or are anticipating a hardship (reduction of income, medical expenses, job relocation, job loss, etc.) this program provides the opportunity to purchase again directly after your short sale.

Another criterion that will be examined is your credit score (and this is the second most popular question I get in regards to short sales and foreclosures). To be eligible for this program you must have a 620 FICO after the short sale is completed. This is a difficult metric to guestimate as credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place and oftentimes those in a higher starting position fall the farthest. According to FICO the average score will drop from 85-160 points with the more extreme examples from 200-300. However, if you remain current on your mortgage during the short sale process then you will not experience the effect that monthly missed payments and delinquencies will have on your credit score – a win-win scenario.