FHA loans typically require a 3 year wait after a foreclosure or short sale before even being considered. Fannie Mae requires 7 years after a foreclosure but will lend to 80% of the property value only two years after a short sale. For a VA loan, the VA will lend 100% of the property value of that county’s VA loan limits. Call a VA Loan specialist to find out the loan limit in your county.
A short sale can help preserve a homeowner’s credit compared to going through a foreclosure. To get a VA loan immediately after a short sale the VA borrower must have not missed any mortgage payments leading up to the short sale in the 12 months preceding. The Short Sale must be paid in full on the mortgage, AND they must have a very good extenuating circumstance for the short sale. The extenuating circumstance cannot be the standard loss of job or common financial reasons for not being able to afford the payment. The home owner would have had to been forced to sell because of a job transfer out of the area, documentable medical condition, documentable crime issue, etc. The homeowner cannot execute the short sale to take advantage of declining market conditions. They also cannot purchase a similar or higher quality property within a distance of approximately 50 miles at a lower price than what they paid for on the original house.
If mortgage payments were missed prior to the short sale, then the Veteran must wait the two year period before applying for a VA loan. During this time, establishing a good credit history is important by paying all bills on time. You will want to make sure you do not have any late payments on any credit accounts, collections, judgments, or any derogatory credit. Having a derogatory credit after the short sale may not disqualify you for loan approval, but it helps to not have any. The two year wait period is from the date the deed to the property that short sold transfers out of your name.
Key points on obtaining a VA Loan after a Short Sale:
- VA loan is available after a short sale immediately if no payments are missed and there was special circumstances
- Two year wait period if mortgage payments were missed
Two year wait period ends at the date following the title has transferred out of your name