For those that sold their homes with a short sale (selling for less than they owed), things are going to change soon. Fannie Mae has allowed you to buy a home as soon as two years after a short sale as long as you put 20% down. That is going to change this month – you are now going to have to wait at least four years to get a conventional loan.
Right now, Fannie Mae has allowed you to buy as long as you had 20% down at two years, then it went to 10% at 4 years. They are changing that policy and making it 4 years for everyone but eliminating the down payment requirements. If you have extenuating circumstances, you may be able to buy after two years, but that can be difficult to prove.
Freddie Mac allows you to buy after 4 years, so that won't help – they probably will not change this since it now matches Fannie Mae.
FHA does allow you to purchase after three years without any specific down payment requirements.
What are extenuating circumstances? Fannie Mae defines them as nonrecurring events that resulted in sudden/significant reductions in income, or a catastrophic increase in your financial obligations. Some situations are major illness or death in the family (such as a spouse), divorce is usually not an extenuating circumstance. If you feel you may qualify for this, ask your loan officer and you may want them to check with an underwriter to verify if it will be considered an extenuating circumstance.
Most importantly, you will want to make sure your credit is good and there aren't any lates after the short sale -that will make a difference in whether or not an underwriter will approve your loan.
As with most things, time will heal short sales, foreclosures and bankruptcies – it's just a matter of how long you have to wait.