Fannie Mae Guidelines Mortgage After Short Sale

This guide covers Fannie Mae guidelines mortgage after short sale and deed-in-lieu of foreclosure. Fannie Mae guidelines mortgage after short sale and after deed-in-lieu of foreclosure requires a four year waiting period after the date of the short sale. A short sale is an alternative to foreclosure.

Short Sales is often offered to homeowners who have mortgage balances which are higher than the market value of their homes by their existing lenders.

A short sale needs to get approved by the homeowners mortgage lender. Normally takes some time to get a short sale approved and closed. In this article, we will discuss and cover Fannie Mae guidelines mortgage after short sale and deed-in-lieu of foreclosure.

How Does The Short Sale Process Work?

The 2008 Real Estate And Mortgage Meltdown has left millions of homeowners with upside mortgages where the mortgage balance of their home loan was higher than the value of their properties. Since the Great Recession of 2008, real estate values have recovered in most parts of the United States.

There are still homeowners who are underwater. Underwater mortgages is when the homeowners mortgage loan balance is higher than the value of their homes.

The only way these homeowners with underwater mortgages can sell their homes and move on is by coming up with the difference of the mortgage loan balance and the property value. Most folks cannot come up with the difference. A short sale is highly recommended for homeowners who can no longer afford their mortgage payments and cannot sell their home. Reasons why they cannot sell their homes is because of having loan balances that is higher than the appraised value of their home.

Fannie Mae Guidelines Mortgage After Short Sale: Unemployed Homeowners

Homeowners who have lost their jobs or businesses due to the Great Recession and can no longer afford their housing payments could not sell their homes. John Strange, a senior mortgage loan originator at Gustan Cho Associates said the following about Fannie Mae guidelines on mortgage after short sale:

Short sale was an alternative to foreclosure. Many lenders want to avoid foreclosure. Lenders will offer the homeowners who can no longer afford to keep their homes foreclosure alternatives such as deed in lieu of foreclosure or short sale.

A homeowner who is offered a short sale by their lender sells the home at a price below the mortgage balance amount. In return, the lender will not go after the deficit and forgive the debt.

Short Sale Process Versus Traditional Home Buying & Selling Process

The short sale process is like any home selling process. The only exception is that the home seller needs to get permission by the lender on the selling price of the home. The homeowner gets to choose the realtor of their choice. The lender needs to approve the listing price of the short sale home. If there is an offer on the short sale home, the lender needs to approve the price and sign the real estate purchase contract as the seller. Short sale homes take much longer to close than regular homes due to the slowness of the bank.

Fannie Mae Guidelines Mortgage After Short Sale: Qualifying For a Conventional Loan

Homebuyers with a prior short sale can now qualify for a conventional mortgage four years after the short sale. The waiting period start date is the short sale date which is on the HUD-1 Settlement Statement. A short sale will plummet credit scores. However, as short sale on credit reports, the short sale will have less and less of an impact on credit scores.

Credit scores will eventually go back up where the short sale will have little to no impact on credit scores. Qualifying for conventional loan after short sale requires no late payment history after the short sale.

Conventional lenders want to see borrower has re-established credit after short sale and timely payments. Minimum credit scores required to qualify for a conventional loan is 620. Conventional loans are very credit score sensitive unlike FHA loans. The higher borrowers credit scores are the lower mortgage rates will be. To get the best available conventional mortgage interest rates, borrowers should have credit scores of 740 or higher. Every 20 point drop from 740, there will be a pricing adjustment on mortgage interest rates.

What If You Are Told You Do Not Qualify For Conventional Loan 4 Years After Short Sale?

Just because you have descent credit scores and have met the 4 year waiting period after short sale does not mean that all conventional lenders will approve borrowers for a conventional mortgage loan. There are many lenders that have mortgage lender overlays on conventional loans after short sale. Mortgage lender overlays are lending guidelines that are set by individual mortgage lenders that surpass the minimum conventional mortgage lending guidelines and standards of Fannie Mae and Freddie Mac.

Here are the Fannie Mae guidelines on mortgage after short sale for borrowers needing a conventional loan.

• 4 year waiting period after short sale.
• The waiting period clock starts from the date of the short sale which is reflected on the HUD-1 Closing Statement.
• Minimum credit scores of 620.
• Minimum 5% down payment for home purchase.
• 3% down payment is available by Fannie Mae on a conventional loan purchase but is limited to first time homebuyers.
• 3% down payment on conventional loans on a home purchase is available with Freddie Mac for homebuyers who did not have any home ownership in the past 3 years.
• Otherwise, minimum 5% down payment is required on a conventional home purchase mortgage loan.
• Maximum debt to income ratio of 50% DTI.

Fannie Mae Guidelines on Mortgage After Short Sale: Lender Overlays

Many banks and conventional mortgage lenders have mortgage lender overlays. Some banks and lenders will require a 5 year waiting period or more after short sale to qualify for conventional loan after short sale even though Fannie Mae guidelines mortgage after short sale is four years.

Many lenders will require minimum amount of credit tradelines. Some mortgage lenders may require 3 to 5 credit tradelines that has been seasoned for two years.

Other mortgage lender overlays include higher credit scores than the minimum 620 credit scores required by Fannie Mae. Other lenders will require verification of rent. Home buyers looking to qualify for a conventional loan after short sale and need a national lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email me at gcho@gustancho.com. We do not have any overlays on conventional loans and as long as borrowers meet the minimum Fannie Mae and/or Freddie Mac lending guidelines, we can approve and close on your conventional mortgage loan.

Buying a Home Again After a Short Sale: Fannie Mae Guidelines

A short sale doesn’t have to keep you out of homeownership for good. Fannie Mae has guidelines that can get you back into a new home sooner than you might think. While older rules had long waits and tough requirements, updates have made the road back shorter and clearer. Knowing how these guidelines work after a short sale can help you plan your comeback, rebuild your credit, and get that mortgage approval.

Short Sale Basics

A short sale happens when you sell your home for less than what you owe on the mortgage, and the lender agrees to accept the lower amount. This process can help you avoid the harsher consequences of foreclosure. However, it still marks your credit report and future mortgage chances.

Timeframe for Buying Again

Standard Wait Time

According to Fannie Mae, you must wait four years after a short sale before qualifying for a conventional loan. This countdown starts when the sale is completed and the lender forgives the debt.

Extenuating Circumstances Exception

If you can prove that something out of your control hit you—like losing your job, facing a serious medical issue, or another tough life event—you might be able to shorten the wait to just two years. Just keep the paperwork ready to back it up.

Credit Score Requirements After a Short Sale

Once the waiting time is up, you still have to hit Fannie Mae’s credit score targets:

• Minimum: Usually between 620 and 640, but your exact score can depend on the lender.
• Better scores help: If your score climbs to 680 or higher, you’re likelier to snag the best interest rates.
• Clean history: You can’t have new big dings on your report, like late payments or collections.
• You have to show you’re managing credit well.

Down Payment and Loan-to-Value (LTV)

Fannie Mae spells out how big your down payment needs to be based on how long it’s been since the short sale:

• Four years later, you could get a mortgage with just 5% down, which gives you a 95% LTV.
• 2 years with extenuating circumstances: Depending on how risky the lender thinks you are, you’ll likely need to put down 10% to 20%.

Debt-to-Income Ratio (DTI)

Lenders will pay close attention to your DTI after a short sale. Fannie Mae usually allows:

• A max DTI of 45% for most borrowers.
• Lenders may accept debt-to-income ratios as high as 50%, but only if you have solid compensating factors such as great credit scores and significant cash reserves.

How to Boost Your Chance of Approval

Even if You’ve Served the Waiting Period, Strengthen Your File By Showing:

• Rebuilt credit score with on-time payments on credit cards, car loans, and other bills.
• Steady income with two-year documentation from your job, tax returns, or pay stubs.
• Cash reserves in savings or retirement accounts to cover several months of payments.

Low overall debt, so the lender sees you as a lower risk.

How to Get Ready for a Mortgage After a Short Sale

Improve Your Credit

• Always pay bills by the due date.
• Keep your credit card balances below 30% of your limit.
• Correct any mistakes on your credit reports.

Save for the Down Payment

• Shoot for 5% of the home price, but 10% to 20% makes your file even stronger.

Keep Your Job Steady

• Show two years of consistent employment, with no long gaps.

Work with a Lender Who Knows Short Sales

• Some lenders impose rules, but others follow Fannie Mae’s basic requirements without extra hoops.

Alternatives If You Don’t Meet Fannie Mae Guidelines Yet

• FHA Loan: You can get financing again just **3 years** after your short sale if your credit is **580** or better.
• VA Loan: If you served in the military, you can qualify 2 years after the short sale.
• Non-QM Loans: Options like bank statement loans or portfolio loans might say yes even faster, but you should prepare for slightly higher interest rates.

Frequently Asked Questions (FAQs)

How Long Must I Wait After a Short Sale to Get a Fannie Mae Loan?

You must wait four or just two years if you have extenuating circumstances.

Can I Qualify For a Conventional Mortgage With Bad Credit After a Short Sale?

No, you need at least a 620 credit score, and 680 or higher is better.

Do I Need a Big Down Payment After a Short Sale?

Not always. You can qualify with 5% down at the four-year mark, but some lenders might ask for more.

Will a Short Sale Hurt My Chances of Buying a House Again?

It hurts your credit, but you can qualify again with time and good money habits.

What Events Can Shorten How Long I Must Wait After a Short Sale?

Big, hard-to-control events can help. These include losing a job, a wage earner passing away, or a serious medical crisis.

Can I Get a Mortgage After Another Short Sale?

Yes, you can. You’ll have to show that your credit is improving, wait a few years, and explain what happened.

Does Fannie Mae Check How I Paid Rent After a Short Sale?

Yes, they do. Steady rent payments show you can handle a mortgage again.

Will I Pay a Higher Rate if I Had a Short Sale?

Not necessarily. You can still get a good rate if your credit and finances look good.

What if I Can’t Get a Fannie Mae Loan Right Now?

You can look at FHA, VA, USDA, or loans that don’t follow the QM rules.

Is It Better to Find a Lender That Won’t Add Their Own Rules?

Yes. A lender without overlays sticks to what Fannie Mae says and won’t add stricter rules. Fannie Mae lets you buy a new home two to four years after a short sale if your credit, down payment, and finances are strong again. With good planning, a short sale won’t stop you from owning a home in the future.

This BLOG on Fannie Mae guidelines mortgage after short sale was UPDATED on August 18th, 2025