You’ve lost your home through a short sale by which the lender accepted less than what you owed when the home sold. A hit to your credit score accompanied that short sale, but all is not lost. You can reenter the housing market and get financing, but a minimum wait of two years, repairing your credit and a cash down payment are required.
Rebuild your credit score by examining your credit reports from the three reporting agencies – Equifax, Experian and TransUnion, and questioning any incorrect information. Report discrepancies and wait 30 days for a correction. Do not pay for the reports at this point, as you only need them for investigative purposes. Pay to receive your credit score from all three once all corrections have been made, knowing that each will probably give a different score, which lenders understand.
Curb your spending. Work to get your expenses between 36-to-41 percent of your gross income; lower is even better and will impress a lender. Limit your credit card usage to 10 percent of the allowable credit to establish a favorable “debt utilization ratio”, and vary the type of credit cards you have to establish different “lines” of credit. Reduce the number of cards that are open in your name to three.
Save your money. Apply for a new, non-government-backed mortgage after two years if you’ve improved your credit score and have 20 percent in cash for a down payment. Wait for four years to reapply if you’ve only saved a 10 percent down payment, and apply for a new mortgage after seven years if your down payment is less.
Investigate a Federal Housing Administration loan, requiring a minimum of 3.5 percent down, three years after your short sale closes. Agree to increase your down payment amount if your Fair Isaac Corp. – FICO – score is in the low 600s.
Apply for a Department of Veterans Affairs – VA – loan two years after closing a non-VA short sale, as long as you can prove stability in your employment, have the income to substantiate the mortgage and meet eligibility requirementrs as a veteran. Pay no down payment with a VA loan.
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