Home buyers have a lot of work to do. They need to start thinking about where they want to live. Many potential buyers are making their list of amenities while also deciding what to do with their current belongings.
Things can be a bit more complicated if you’re attempting to purchase a house after having a short sale on your previous residence. A short sale happens when a homeowner sells their house at a price that won’t cover their remaining mortgage balance. They may have had multiple mortgages on the house. This usually happens when the owner is in arrears or is otherwise having financial difficulty. The lender will usually have to approve the short sale before an offer can be accepted.
Buying a home in Texas isn’t always easy. You need to pay attention to current economic trends and economic conditions. This can help you discern if you’re in a buyer’s market or a seller’s market. Even if things start running smoothly, there could still be delays or other issues that pop up at various stages. Patience, persistence, and a proactive plan of action can help you accomplish your goal.
Here are a few things that you can do if you want to buy a house following a short sale:
1. Rebuild credit.
The very first thing that you should do is to start working on your credit. It’s going to take some time after a short sale before you can qualify for another home loan. That’s okay. In the meantime, you can open smaller credit accounts to show lenders that you can pay your obligations on time.
You can research different types of credit cards. At first, you might only be able to obtain secured credit cards. These cards typically require a deposit which is used to pay for purchases. They will also report your payment history to the major credit reporting bureaus. Just don’t overdo things. Pay your monthly credit card balances on time and don’t try to over-extend yourself by charging too much or taking out more credit accounts than you can reasonably afford.
2. Realize what makes up your credit score.
Your credit score is more than just a number. The kinds of and age of the credit accounts that you have, how many inquiries have been made into your credit information and your payment history are a few of the elements that are used to determine your credit score. Short sales can reduce a person’s credit score by around 100 to 150 points on average.
Higher credit scores are always preferred, of course. It can take a person several years or even decades to have a credit score that’s good enough for them to get any kind of mortgage loan that they want to apply for. You may want to start setting goals for yourself and track your progress at certain intervals.
3. Monitor your credit activity.
You can request a copy of your credit report from one of the three credit reporting bureaus (Equifax, Experian or TransUnion). Your short sale should be listed as being paid or closed with a zero balance. There may be a notation that the transaction was settled for less than the complete balance if that did indeed occur.
Take some time to read your credit report carefully. Pay attention to any inaccuracies or errors that you find. They can be reported to the credit bureau and may even be removed if possible.
Each lender has their own rules regarding how long a buyer who has had a short sale must wait before they can apply for a home loan. Some of them are as follows:
- Non-qualifying loans: There usually isn’t a waiting period required for a non-qualifying loan. However, these types of loans could have a higher interest rate. They may also mandate a larger down payment than normal.
- VA loans: Veterans Administration loans usually require that people who have had a short sale wait at least two years before applying. Each lender’s requirements can vary. You might not even have a waiting period if all payments before the short sale were made on time.
- Conventional loans: Wait times for conventional loans can fluctuate, depending on the situation. It’s possible that you could apply and even be approved for a conventional mortgage loan after two years, but you may need to make a down payment of at least 20 percent. You might also be asked to verify that you had a job loss, divorce, the loss of a family member or other extenuating circumstances occurred. You may need to wait four years if your down payment is no more than 10 percent and up to seven years if your down payment will be less than 10 percent of the home’s sale price. A credit score of 620 or more is typically required.
- USDA loans: Be prepared to wait for three years before you can qualify for a USDA home loan. This is true, even if there were no extenuating circumstances that directly contributed to the short sale.
- FHA loans: You could be asked to wait just one year after a short sale to apply for a FHA loan, if you can confirm extenuating circumstances. Otherwise, you could wait for as long as three years to qualify. If the mortgage on your last residence was paid on time before the short sale and never went into default, you might not have a waiting period at all. A credit score of at least 500 or better is usually preferred.
You can always talk with your realtor if you have questions. Most agents should have experience with clients who are looking to start over after a short sale. They should be able to provide you with insight and may have contacts with different lending organizations who may be able to assist you.
Short sales can be stressful, but they’re not permanent. You may want to think of it as a bump in the road. It will take considerable time and effort before you can find another home. That’s okay. When you do, your hard work will definitely be worth it in the long run. Just make sure to keep up with your monthly mortgage payments, utility bills and other debt obligations so that you can ensure that the house you acquire will be yours for many years to come.