Refinance guide refinance after a short sale waiting periods

Refinancing after a short sale: what homeowners need to know

A short sale is when a lender agrees to accept less than the outstanding mortgage balance and the homeowner sells the property to avoid foreclosure. If you went through a short sale and later want a new mortgage (either to buy a new home or to refinance an existing one), most mortgage programs impose waiting periods. This article explains when refinancing or getting a new mortgage makes sense after a short sale, typical waiting periods, benefits and drawbacks, costs to expect, a step-by-step path back to qualifying, common pitfalls, and a short FAQ.

What it is and when it makes sense

“Refinance after a short sale” typically refers to applying for a new mortgage after completing a short sale on a prior property. In many cases the new loan is actually a purchase loan (buying another home) rather than a refinance of the short-sold property. If you still own another property and want to refinance that mortgage, the same credit-event rules can apply when underwriter looks at your credit history.

It makes sense to pursue a new loan after a short sale when:

• Your credit has recovered enough to qualify for competitive rates.
• You need a lower monthly payment, better interest rate, or want to move into homeownership again.
• You’ve satisfied any lender-specific requirements (waiting period, documentation of extenuating circumstances, paid deficiency judgments).

Typical waiting periods (what to expect)

Waiting periods vary by program and by lender overlays. Below are common guideline ranges — treat them as typical, not absolute.

• Conventional (Fannie Mae / Freddie Mac): Commonly 4 years from the short-sale date. In some cases this can be reduced to 2 years with documented extenuating circumstances and re-established credit.
• FHA: Typically 3 years, but some borrowers can qualify after 1–2 years if they demonstrate uncontrollable extenuating circumstances and have re-established credit.
• VA: Commonly 2 years, sometimes reduced to 1 year with approved extenuating circumstances; rules can depend on whether the event was related to military service.
• USDA: Usually 3 years, though USDA may consider shorter periods with strong documentation and compensating factors.

Note: Individual lenders often add overlays that lengthen these waits. The waiting period start date can be the date the short sale closed, the date the lender approved the short sale, or the date of mortgage satisfaction; get confirmation of the date your lender counts.

Benefits and drawbacks

Benefits

• Avoiding foreclosure: A short sale typically has a less severe credit impact than a foreclosure, and the waiting period may be shorter than for a foreclosure.
• Path back to homeownership: After the waiting period and credit recovery, you can qualify for conventional or government-backed loans again.
• Potential for better terms: With time, renewed credit and a larger down payment can lead to lower rates than initially available after the short sale.

Drawbacks

• Credit score hit: Short sales still damage credit and remain on the report for years, affecting rates and qualification.
• Waiting time: The required waiting periods delay your ability to move or refinance.
• Possible tax implications and deficiency judgments: A short sale can lead to 1099-C income tax reporting if debt is forgiven, and in some states lenders can pursue deficiency judgments unless waived.

Costs and fees to expect

Getting a new mortgage after a short sale carries the normal costs of purchase or refinance plus potential extra expenses to address the aftermath of the short sale.

• Typical closing costs: 2%–5% of the loan amount (origination fee, appraisal, title, escrow, recording, prepaid interest and insurance).
• Higher interest rate or PMI: Lenders may charge higher rates initially or require private mortgage insurance if your down payment is small.
• Credit repair costs: Services or fees for resolving collections, paying off judgments, or credit counseling.
• Tax or legal costs: If the short sale generated taxable canceled-debt income or a deficiency judgment, you may have tax or legal expenses.

Step-by-step process to qualify again

1. Confirm timeline and documentation. Get the exact date the short sale was recorded or the lender released the mortgage — lenders will use that to calculate waiting periods.
2. Review your credit report and scores. Dispute errors, pay down revolving balances, resolve collections and any judgments tied to the short sale.
3. Document extenuating circumstances (if applicable). Medical emergencies, job loss, or other uncontrollable events should be documented if you plan to request a reduced waiting period.
4. Re-establish credit. Make on-time payments for at least 12–24 months; keep credit utilization low and avoid new late payments.
5. Save for down payment and reserves. A larger down payment reduces lender risk and can offset recent credit events.
6. Shop lenders and loan programs. Different lenders have different overlays; compare banks, credit unions, and portfolio lenders. Ask about program-specific waiting periods and extenuating-circumstance policies.
7. Pre-qualify and apply. Submit full documentation once you meet program requirements and the waiting period has elapsed.
8. Underwriting and closing. Address any conditions quickly — underwriters will want proof of income, assets, and how you handled the short sale.

Common pitfalls to avoid

• Assuming all lenders follow the same timelines—shop around because some have harsher overlays.
• Failing to verify the waiting period start date—use the lender’s official date for qualification calculations.
• Ignoring deficiency judgments or tax consequences—unresolved legal or tax issues can block approval.
• Opening new credit lines or missing payments—this slows credit recovery.
• Not documenting extenuating circumstances—missing paperwork may prevent a reduced waiting period.

FAQ

How long after a short sale can I get a mortgage?

It depends on the loan program and the lender. Typical guidelines: conventional about 4 years (sometimes 2 with extenuating circumstances), FHA about 3 years (sometimes 1–2 with hardship documentation), VA often 2 years (can be shorter in special cases), and USDA commonly 3 years. Always verify with the lender you choose.

Can a waiting period be shortened?

Yes — many programs allow a reduced waiting period if you can prove extenuating, documented circumstances beyond your control (job loss, medical crisis), plus evidence of sustained credit re-establishment and on-time payments.

Will the short sale always show up on my credit report?

Yes. A short sale, related charge-offs, or collections resulting from it will appear on your credit reports. Their impact fades over time as you build positive credit behavior.

Can I avoid the waiting period by going to a private or non-QM lender?

Some portfolio or non-qualified mortgage (non-QM) lenders may consider loans sooner or use manual underwriting, but they often charge higher rates and require larger down payments or reserves. Shop carefully and compare total cost.

META: refinance after a short sale waiting periods, short sale waiting period, how long to refinance after short sale, mortgage after short sale, FHA VA conventional waiting times, recovery steps after short sale