Start with the closing statement from the short sale, because the date on it sets every clock. A short sale is a sale the lender approved for less than the loan balance, and FHA calls it a pre-foreclosure sale. HUD's rule is 3 years from that date, with two ways to qualify sooner.
Waiting periods by program
| Program | Wait after a short sale | Ways to go sooner |
|---|---|---|
| FHA | 3 years from the date the sale closed | No wait if every mortgage and installment payment was made within the month due for the 12 months before the sale; also an exception for documented extenuating circumstances with reestablished credit |
| USDA | 36 months before the application | Inside 36 months, the lender can request a credit exception when USDA's automated system refers the loan or it's reviewed by hand |
| VA | No fixed wait in VA's rules | Each lender sets its own timing, often about 2 years |
| Conventional (Fannie Mae) | 4 years | 2 years with documented extenuating circumstances |
The FHA rules come from HUD Handbook 4000.1, USDA's from HB-1-3555 and Conventional's from Fannie Mae's Selling Guide. Extenuating circumstances means a one-time event outside your control, such as a serious illness or the death of a wage earner. HUD says divorce alone doesn't count.
No FHA wait if you stayed current
Plenty of owners sold short while still making every payment, often after a job transfer or a drop in value left them owing more than the home was worth. HUD treats those sellers differently. If your mortgage payments and installment debts, such as a car loan, were all paid within the month due for the 12 months before the short sale, there's no 3-year wait on FHA at all. Twelve months of mortgage statements or a payment history from the old servicer proves it.
A worked example in St. Lucie County
A buyer's short sale closed 30 months ago. Here's how the calendar looks in two versions of the story.
| Behind on the mortgage before the sale | Current for the 12 months before the sale | |
|---|---|---|
| FHA (36 months) | Eligible in 6 more months | Eligible now |
| USDA (36 months) | 6 more months, or sooner with a credit exception | 6 more months, or sooner with a credit exception |
| VA (lender timing, often 24 months) | Likely eligible now | Likely eligible now |
| Conventional (48 months) | Eligible in 18 more months | Eligible in 18 more months |
The buyer earns $5,600 a month, pays $300 a month on other debts and has rebuilt to a 607 score. Here's a $295,000 single-family home with FHA at 3.5% down and a 5.75% rate on a 30-year fixed, taxes at 0.95% of the price and insurance at $265 a month:
| Payment piece | Amount |
|---|---|
| Down payment (3.5%) | $10,325 |
| Total loan with 1.75% upfront MIP | $289,656.81 |
| Principal and interest | $1,690.36 |
| Monthly mortgage insurance (0.55% a year) | $130.48 |
| Property taxes | $233.54 |
| Homeowners insurance | $265.00 |
| Total payment | $2,319.38 |
That's 41.4% of income for housing and 46.8% with the other debts, inside FHA's 46.9% and 56.9% limits. If the buyer stayed current before the sale, this home is within reach today. If not, it's six months out, and those months can go toward saving the $10,325 or lining up a gift.
Check the deficiency before you apply
The deficiency is the gap between what the home sold for and what was owed. Many short sale approval letters waive it, and some don't. If yours didn't and the old lender sued for the balance, that's a judgment. FHA, VA and USDA want it paid or on a written payment agreement, and Conventional wants it paid at or before closing. Read the waiver language in your approval letter, and see the rules on buying with a judgment if one was entered.
Using the wait well
- Rebuild credit. Two or three accounts paid on time with low card balances show the underwriter a fresh record.
- Gather the old loan's payment history. It's the proof for FHA's no-wait exception.
- Keep hardship documents. Medical records or a death certificate can support an extenuating circumstances exception on FHA or Conventional.
- Save or line up a gift. FHA lets family gift the whole 3.5%.
Set your price in the affordability calculator so you know what to shop for on the day you're eligible. For the exact date, call AAA Capital Funding at 888-601-8344 with your short sale closing statement, and we'll count the months for every program.