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I previously had two mortgages and last November completed a short sale of my second home (which I owed $410K) that was not my primary residence. I missed 10 payments leading up to that short sale.

I have not missed any payments or had any late payments on my current mortgage ($177K), which I have had since November 2010.

My current mortgage is an FHA loan which requires I pay a few hundred dollars a month in mortgage insurance premiums, and I'd like to refinance my loan if it is possible to a conventional loan with a 15 year term.

At the time of the short sale of my second home, my credit score had dropped to 644. My credit score has now rebounded to 744, which is fairly close to where it was before I missed any payments on the second home (746).

I'd like to know if banks are likely to approve me for a refinance based on my now repaired credit score, or if the short sale mark on my credit report will cause them to automatically reject me (the short sale is the only negative mark on my credit). Lastly, are there any government regulations that would prevent banks from working with me.

Thanks in advance for the help!

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  • Maybe you should read Wikipedia on this matter and report back to us how accurate that article is. Overall, it seems that the short answer to your question is It depends.
    – Dilip Sarwate
    Commented May 18, 2012 at 23:16
  • Did you read the question? I've already completed a short sale. I don't need help using Google.
    – ctorx
    Commented May 19, 2012 at 4:32
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    -1 Yes, I read the question. This is one of those instances where, as money.SE says, "this question does not show any research effort". It is nice to know that you do not need help using Google; it is too bad that you do not actually use Google. The Wikipedia article clearly says that many banks will not consider you for a mortgage because of the short sale. Missing ten payments on a previous mortgage does not help either; many banks will hesitate to lend money under these circumstances, or will demand a higher interest rate to compensate for the additional risk will be taking on. Sheesh!
    – Dilip Sarwate
    Commented May 19, 2012 at 10:43
  • The article clearly does not talk about refinancing. I specifically asked about refinancing AND government regulations in regards to refinancing after a short sale. The article you posted did not discuss either of those topics. Lastly, if I wanted a boiler plate answer I would have went to Wikipedia. The great thing about stack exchange is that you can post specific questions and get detailed answers from smart people. Unfortunately, you decided to throw out a down vote when I criticized your comment. +1 for your ego, -1 for the community.
    – ctorx
    Commented May 19, 2012 at 14:53
  • If the bank that is being asked to refinance a mortgage is not the bank that is holding the current mortgage, it makes only a very small difference that you are refinancing; they still will go through almost all the steps that they would if you were buying the house from someone else. In short, the Wikipedia article I pointed to is very applicable to your question even if it does not use the word refinancing. As mhoran_psprep has pointed out to you, it is considerably easier to get the bank holding your current mortgage to adjust the rate (a true refinance) rather than approach another bank.
    – Dilip Sarwate
    Commented May 20, 2012 at 3:37

3 Answers 3

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There are no government regulations that would restrict them from working with you. During the housing bubble and crash many lenders made stupid loans. They made loans that made no sense, the borrower didn't have the income. They made loans to people with slim files, they had great scores but not a long history. They made loans to people with poor credit scores. They even made loans to people with multiple problems.

They attempted to compensate for the additional risks by making exotic loans: 80/10/10, no interest, pick your payment, increasing balance loans...

What you want to know is "if all banks will automatically avoid me because I missed many payments, did a short sale...". In all apologies to Dilip Sarwate's comment, the short answer is that your best shot is your current lender. They are already at risk, the real question is that by refinancing your loan can they decrease their risk or improve their profits/cash flow. If the math doesn't work for them, it will be hard to find somebody to take that risk.

Any mortgage from any lender will involve determining if they can get underwriting. It is not just based on your score, and history, but also your income, and the local market. In an area with a lot of foreclosures, or homes heading into foreclosure, they may be unlikely to taker a big risk.

Other questions remain:

  • Have all the tax issues regarding the short sale been resolved?
  • Do you have the $'s for the 20% down to avoid mortgage insurance?
  • Can anybody in your area get any mortgage? In condo complexes they look at the percentage of renters.
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Here is what my latest research has revealed:

The latest Fannie Mae guidelines state that after a deed-in-lieu of foreclosure, preforeclosure sale, or short sale, there is a mandatory waiting period of two years for a loan with an 80% maximum LTV (loan-to-value ratio), or four years for a loan with a 90% LTV. If the borrower can document extenuating circumstances, the waiting period for a loan with a 90% LTV drops to two years.

FHA requires borrowers who weren't paying their mortgage when they sold their house to wait three years before they can qualify for a home loan. That time penalty may be waived in certain cases, including long-term job loss. There is no FHA time penalty for homeowners who made their house payments in the 12 months before their short sale. The size of a down payment can also shorten the waiting period.

The USDA loan program is a popular option for people who have had a short sale or foreclosure in their past because it is one of the mortgage programs with the shortest waiting periods and most flexible underwriting guidelines. The waiting period for a USDA loan after a short sale can be as little as 2 months in the right situation. Requirements include: Credit Score of 660 or higher and no late payments for the past 12 months (this can be a real clincher).

Of course, each case is unique and requirements have a sneaky way of changing.

I wrote an article discussing the HAMP program that you may find interesting. It is entitled "A Look at the Home Affordable Modification Program".

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As of August 16,2014 you must no wait 4 years after short sale in order to refi.

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    Welcome Char. Do you have a citation or qualification you can provide to make the answer more robust?
    – MrChrister
    Commented Oct 20, 2014 at 18:57
  • The closest I can find to this assertion is on the FHA website: fha.com/fha_article?id=411 which seems to indicate it would be three years before eligibility resumes if you were not current on your payments.
    – NL - SE listen to your users
    Commented Oct 20, 2014 at 20:33

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