Should I buy short sales?
A short sale is where the lender is willing to accept less than what is owed on the loan to allow a sale of the property to occur. In most transactions, the loan to the lender must be paid off for the sale to occur. So, when you’re doing Nomad should you consider buying a short sale? My advice… don’t focus on them.
If while looking for a Nomad property you happen to come across one that is a short sale and it would be a good Nomad property, then I would not automatically discourage you buying it just because it is a short sale.
However, I would definitely not encourage you to specifically seek out short sales to buy.
In fact, in our local market in Northern Colorado… the number of shorts sales is currently almost non-existent. So, we do not focus on buying them at all.
I would encourage you to rely on the advice of your local real estate agent on a case-by-case basis when considering buying a short sale as a Nomad property.
One additional important note on short sales… they can take a lot longer to close than traditional transactions as you wait to get approval from the lender to accept the short sale. That can make it very difficult to put a tenant if your previous property and purchase the short sale. So, definitely take that into consideration as well.
Can I do Nomad with a short sale?
It is not unusual for a Catch Up Nomad to find themselves as a Catch Up Nomad partially because they’ve had some financial challenges in the past. These challenges often involve a short sale where they sold a property and had the bank accept less than what was owed as payment to have the sale go through.
So, once you have a short sale, does that mean you can’t do Nomad anymore? No, you can still do Nomad even if you’ve had a short sale in the past.
There are a couple variables on how long you’ll need to wait to be able to get a new FHA loan after you’ve had a short sale. In some cases, you may not need to wait at all.
For example, if you were not in default at the time you filed for a short sale and you had been current with all on-time payments for mortgages and other installment debt for at least 12 months leading up to the short sale… then there is no waiting period at all and you can get an FHA immediately.
On the other hand, if you were in default (behind on payments) there may be a three year waiting period for getting an FHA loan. The 3 year waiting period begins on the date of the short sale or if it was an FHA-insured loan then it becomes the date FHA paid the claim on the short sale.
There are some additional exceptions to the three year waiting period if you can show extenuating circumstances that caused the default. For example, if there was a serious illness or death in the family of the primary income earner, a divorce in very limited situations or job loss.
I think it goes without saying that you need to show you had good credit prior to the short sale and have good credit now. You’ll need to qualify for the new loan.
The waiting period for conventional financing after a short varies with the amount of down payment. So, to get additional Nomad properties with minimal amounts down, you’ll likely need to wait up to 7 years. If you’re willing to put more down, the time frame you need to wait shortens considerably down to 2 years if you’re willing to put 20% down.
In a future article, I’ll need to write out a modified Nomad model for those with short sales, bankruptcies or foreclosures but there are some creative things we can do that will still follow the lender guidelines.