How Soon Can I Buy a Home After a Short Sale

TOP Question of the week.....asked by no less than 6 people this week: 

How soon can I buy a home after I short sale this home?

First off, it's worth noting that buying a home after a short sale is much easier and sooner than after a foreclosure.  I beg home owners to not "walk away" as it is truly a major hit to your ability to secure financing for a home purchase in the many years to come. 

Buying a home after Short Sale:

FHA underwriting guidelines, that are always changing, currently state that a home owner can receive financing 3 years after they sold their home in a short sale.  Although, that time penalty CAN be waived in certain cases, including long term job loss/loss of income. 

Another possibility, slim as it may be, there is NO time limit on another purchase using FHA if the short sale home owner was current on payments for the previous 12 months before the date of short sale closing.  That's a homeowner who stays current on payments during a short sale.  

Current on payments for a short sale?  I've seen one or two short sales get approved while an owner is current on payments, but it's very rare.  After all, the banks are looking for a hardship, and they've made it almost impossible to have a positive short sale outcome unless the hardship is financial.  Most banks even require you to be 90 days or more late before they will even look at you for a short sale. 

So 3 years or sooner for FHA financing. 

Have a 20% down payment?  Fannie Mae will approve you for conventional financing 2 years after your short sale.  If you only have 10% down, it's 4 years for a Fannie Mae backed loan. 

FICO credit score.  You WILL need a good credit score.  After a short sale, you get an initial hit to the score, and then you should start seeing a rebound in about 6 months to 1 year.  That being said, you have to pay all your bills on time, and use your credit cards to only about 30% available balance and continuously pay them off. 

Get your FICO back to 700+, get 3.5% of total purchase price for an FHA down payment, get 2% of total purchase price for closing fees and moving expenses, and wait 3 years from your anniversary date of short sale.  Do this, and you'll most likely get a mortgage with about as good an interest rate as exist at the time.