To get a mortgage after a short sale, you must observe mandatory waiting periods that vary by loan type and financial circumstances, and focus on rebuilding your credit, demonstrating steady income, and saving for a larger down payment.
1. Understand Waiting Periods by Loan Type
The time you must wait from the date the title is transferred depends on the type of loan you are applying for and your specific situation.
| Loan Type | Standard Waiting Period | Shorter Period (with extenuating circumstances) |
|---|---|---|
| FHA Loan | 3 years (if in default) | 1 year (or immediately if current on payments) |
| Conventional Loan | 4 years | 2 years (with 10% down) |
| VA Loan | 2 years | No waiting period if payments were on time before sale |
| USDA Loan | 3 years | May be shortened with a high credit score (640+) |
| Non-QM (Private) Loan | None (as little as 1 day) | Requires larger down payments and higher interest rates |
Extenuating circumstances are non-recurring events beyond your control, such as a job loss, serious illness, or the death of a primary wage earner. You must provide documented proof (e.g., termination letters, medical bills) and a hardship letter to qualify for a reduced waiting period.
2. Rebuild Your Credit
The short sale will damage your credit score, but a positive payment history moving forward is the most important factor in recovery.
- Review your credit report regularly for errors and dispute any inaccuracies with the credit bureaus. You can get free reports from AnnualCreditReport.com.
- Pay all bills on time consistently. Setting up automatic payments can help.
- Reduce existing debt to keep your credit utilization rate (the amount of credit used vs. available) below 30%.
- Avoid opening new credit accounts in a short period, as multiple inquiries can temporarily ding your score.
- Consider a secured credit card or credit-builder loan if you need to establish new credit lines.
3. Demonstrate Financial Stability
Lenders want reassurance you can manage a new mortgage, so proving current stability is crucial.
- Maintain steady employment and be ready to provide W-2s, pay stubs, and tax returns for the past two years.
- Save for a down payment and reserves. A larger down payment reduces the lender’s risk and can improve your approval odds.
- Lower your debt-to-income (DTI) ratio to within acceptable guidelines (typically no higher than 43%).
4. Work with an Experienced Lender
Find a mortgage professional or lender who is experienced with short sales and can guide you to the best loan program for your specific situation. They can help youÑ
- Navigate specific loan product “overlays” (a lender’s stricter requirements beyond the agency minimums).
- Ensure the short sale is reported correctly on your credit report (as “settled for less than full balance” rather than a foreclosure).
- Gather all necessary documentation, including the hardship explanation letter and proof of recovery.