So – you got caught in the housing “boom and bust” and cut your losses with a short sale. Now you’re looking at rock bottom prices combined with historically low interest rates, and thinking that it’s a good time to once again become a homeowner.
And you’re right – it is. Locking in to a low payment now means you’ll be sitting pretty in a few years when both prices and interest rates have gone up.
But what about that short sale in your past? Will it prevent you from buying now?
That depends upon your credit scores, and the length of time since your short sale.
According to the latest Fannie Mae Guidelines, there’s a mandatory waiting period of two years after a short sale if you’re going into a new purchase with a 20% down payment. The waiting period is 4 years if you put only 10% down – unless you can document extenuating circumstances. If so, the 2-year waiting period applies.
FHA requires a waiting period of 3 years after a short sale or foreclosure, but then you can buy with a down payment of only 3.5%.
Of course, you do have to have acceptable credit scores. And while FHA guidelines say you are eligible for a new mortgage loan with FICO scores of only 580, most lenders impose their own overlays that mandate a FICO score of 640 or better.
That means the first step is to get a copy of your credit report – with scores – and see how you stand.
If your credit report shows collection accounts, you may be required to pay them off – and doing so will help your scores. Note that you may be able to negotiate a payoff for less than the full balance. But do talk with a trusted loan officer for advice before going forward with any kind of payoff.
Next, read the recommendations on your credit report for tips on how to raise your scores, and listen to the advice that your loan officer gives.
In general, you should try to pay down or transfer balances on your current credit cards show that no account shows more than 30% usage. You should also “lightly” use each of your cards every couple of months, to show activity and a record of payment.
Avoid opening new accounts or letting any vendor check your credit in the months preceding your home search. At the same time, avoid closing any old accounts.
Read your credit report carefully and correct any errors that could be hurting you. Right now, reporting errors are depressing scores for many consumers who are working to overcome financial difficulties.
If you’re a “new couple” and only one of you was involved in the past short sale, consider taking out the new mortgage in the “other partner’s” name only. With today’s low prices and interest rates, you might not need two incomes to qualify.
Not simple, but worth it…
If you plan to remain in your community for at least the next few years, purchasing a home right now and locking into low payments is a smart move. That short sale in your past will make the process a little more difficult, but as long as your credit and your financial situation are on the mend, you can do it.
CreditScoreQuick.com
