How soon after a short sale can you grab a refinance mortgage loan?

Special Submission by Stuart Parker

Did you participate in a short sale of a home where the mortgage lender allowed you to sell it off at an amount that is much less than what you owed on the loan?

If answered yes, you have gone through a short sale and this means that the mortgage lender took a loss on your mortgage in order to help you avoid foreclosing the property.

Now if you’re a candidate who is wondering about the possibilities of refinancing your home mortgage loan on another property, you’re at a Catch-22 situation and making the entire thing possible and cove table will depend on a number of factors. You might need to wait for several years or at least months before you qualify for another refinance mortgage loan.

If you’re oblivious of the entire process of taking out a refinance after a short sale, here are some points that you need to consider.

Significance of your credit score to the refinance mortgage lender and some other facts

Your credit score has a considerable and significant impact on your ability to obtain a refinance mortgage loan. According to the Washington Post, your credit score suffers in the similar manner in a short sale as it does in a foreclosure and hence it makes no such difference.

The derogatory information against you and your finances will continue to appear on your credit report for the next 7 years. The more are the number of mortgage payments that you’ve missed before the short sale, the greater will be the damage to your credit score.

The potential refinance mortgage lenders will scrutinies the debt amount that you’re presently carrying and your income level while reviewing the refinance mortgage application.

It might happen that after the short sale, your mortgage company sued you for the deficiency balance that you owed, this will be reported on your credit report as outstanding debt.

The refinance mortgage lenders won’t lend you a home loan at an affordable interest rate when you have huge debts on your credit report.

The lender’s view of this is that the more debts you carry, the more will be the trouble that you have while affording the mortgage installments.

The waiting period

The mortgage lending guidelines post short sale depends on the mortgage lender. As you have a tarnished credit score, it is most likely that the mortgage refinance lender will hesitate lending you such loans.

For all those home loans that are federally backed, like those from the Federal Housing Administration, you have to at least wait for another 2 years to regain eligibility post short sale. On the other hand, the private mortgage lenders will be free to set their own time frame for the same.

Some other considerations

Most mortgage loans under $400,000 are eventually sold by the mortgage lenders, who make them. However, there are certain government-sponsored entities like Fannie Mae and Freddie Mac who do the bulk of purchasing. Since Fannie Mae purchases so many loans, most lenders abide by the lending guidelines.

If they didn’t agree, Fannie wouldn’t purchase their mortgage and they would have run out of new funds.

Currently, the Fannie Mae guidelines have reduced the waiting period between short sale and a new home loan to 2 years from 5 years.

So, if you’ve gone through a short sale, you might have to go through the above mentioned details. Shop around and get multiple quotes so as to grab the best deal in the market that is within your means.