Recently the staff at USHUD.com was asked an excellent question, a couple came to us looking for information because they were looking to sell their current home and purchase a new one, the problem was a few years earlier they went into default on their mortgage for a second home.
They informed us they are current on their mortgage for their primary home, and they have paid all of their credit card debt, the question was “Will I have a problem getting a new mortgage with 20 percent to 30 percent down? We both have good incomes.”
Our staff sat down and mulled it over for a while and the answer we came up with was, we don’t know if it for sure will or not, just that it could.
There could possible be unresolved problems since the short sale of the second home, the first is the effect the sale had on your credit report, this is reported to all major credit bureaus and will be a significant deterrent for any bank approached for lending you the money. Now, the more time that has elapsed since the short sale, the better, generally it takes about 7 years from the date of default.
Another issue is that if you do not live in a non-recourse state (AK, AZ, CA, CT, ID, MN, NC, ND, TX, UT or WA) you could hear from collectors for the remaining balance on the mortgage that went into default. And chances are regardless you still owe income taxes on the amount of the loan that was forgiven. Unfortunately since it was a second home it is not eligible to qualify for the Mortgage Forgiveness Debt Relief Act, which expired December 2013.
Our recommendation is to make sure you can qualify for a mortgage you can afford before trying to sell your current home because aside from the already mentioned problems, it is possible you will not qualify for a FHA, Fannie Mae or Freddie Mac mortgage on any terms. With a FHA mortgage, you must wait three years from the date of the short sale, where for a Fannie Mae/Freddie Mac loan, you must wait two years with a 20% down payment or four years with a 10% down payment, and many private lenders also follow the Fannie Mae and Freddie Mac rules for extending mortgages after a short sale.
It’s good that you’ve paid all your credit card debt. Assuming you have also paid your other credit accounts on time and as agreed, your credit may have recovered to a minimum level needed to qualify for a mortgage. If you haven’t already, purchase your three credit scores to get an idea of how much damage you have still to repair.