Home Loan Approval after Short Sale Process

by Clark in Virginia and by S & D in Virginia

Ask Kate how to get home loan approval after a short sale process: In spite of claims that selling your home for less than your loan balance is better than mortgage foreclosure, there are no guarantees of smooth sailing after short selling a property. Meet Clark and S & D who are struggling with refinancing and buying a home after negotiating a short sale.


Question 1: Primary Home Refinance after Short Selling Rental Property

By Clark from Virginia
How to Get Home Loan Approval after Short Sale Process

Kate, Our primary residence mortgage is a Fannie Mae so we would be eligible for HARP 2.0... but we had a short sale on a different (rental) property several years ago.

Everything I have read says that to be eligible for a re-fi you must have no late payments on your current mortgage for the last year. But everyone we talk to sees the late payments from the rental property in 2009 and stops before there's any chance of a refi for us.

They won't touch us even though we have never missed a payment on our primary residence mortgage.

Our current APR is 6.375% and while it isn't a terrible rate, there are much better rates to have. Our credit scores have come back up above 700 but the short sale is killing us... How do we get a refinance with a lower rate after short sale?

***zz-portrait-left.shtml*** Ask Kate answers: Refinance of Primary Home after Short Sale of Rental Property

Hi Clark,

You are right! HARP 2 guidelines state there can be no more than 1 late payment on the primary mortgage within a year of application and none within the previous 6 months.

To read it yourself, go to 'HARP 2.0 Credit Score Improvements' at New HARP 2 Loan Announcement.

But real estate short sales are more than a step beyond having a late house payment. So check this out. While describing their HAFA Short Sale Foreclosure Alternatives, Fannie Mae says if you choose the short sale process over foreclosure, you may be able to get a mortgage within 2 years as opposed to 7.

But as you are finding out, even with the more relaxed credit guidelines of HARP 2.0 with no minimum credit score requirement vs the stiffer guidelines of HARP 1, banks are still adding their own infuriating lender overlays.
Overlays are self-imposed requirements in addition to Fannie Mae and Freddie Mac guidelines that lenders are held responsible to fulfill.
So here's what I advise. If you are willing to apply some elbow grease, I suggest writing a letter of explanation, detailing the reasons behind your short sale. Include documentation showing the date it closed.

Discuss your strengths. Are your debt-to-income ratios low? Talk about them! Have you been on your job since the start of time? Discuss it!

Then document the perfect payment record of your mortgage on your personal residence with bank statements or cancelled checks. Depending on the amount of human-judgement allowed in your lender's loan approval process, this could tip the scales in your favor. (This is a tried-and-true tip based on my years of experience in lending.)

Good luck re-applying for an affordable mortgage payment!

Don't forget you can ask me another question. (To ask a question regarding my response, follow the commenting-link at the bottom of this page.)

Best wishes,


Question 2: Buying a Home after Short Sale Process

By S & D from Virginia

Kate, We completed short sale of our home in March 2011. It is our understanding that we can't get FHA financing for 3 years, post-close of short sale. So that leaves us with conventional financing.

We have $25,000 - $30,000 downpayment. We know we will have to pay mortgage insurance with less than 20% down. Our question is how easy will it be to find a mortgage lender?

Our income is good (approximately $140,000), our credit scores are in the low 700's, and our debt-to-income is about 35%.

***zz-portrait-left.shtml*** Ask Kate answers: Buying a Home after Short Sale Process

Hi S & D,

As you just read in my reply to Clark, Fannie Mae states that a home buyer may be able to get a mortgage 2 years after the short sale process as opposed to 7 years for buying a home after foreclosure.

Of course, this does not take into account the loan-to-value. However, your substantial income, low debt ratios, and strong credit scores will be crucial to your success.

But with the myriad of parameters that are taken into account during underwriting, only a lender can adequately analyze your ability to obtain loan approval. So I suggest you take the same steps that I offered to Clark. Make your request for a mortgage too hard for a lender to turn down!

To learn how an old-fashioned hat rack can help you be successful at mortgage loan approval, go to Fannie Mae Homepath Financing. Good luck to you also.

Best wishes,

P. S. Don't jump to conclusions about being locked out of FHA financing. Borrowers can still be considered eligible for a FHA home loans if mortgage payments were made on time for the entire year preceding the short sale.

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