Credit Convalescence
I know don’t know that there’s a firm rule of thumb out there — ultimately, individual lenders decide to make a loan or not based on individual circumstances — but there 
are some conventions as to how long it takes a would-be borrower to rehabilitate their credit after a short sale.
The consensus?
Five years of good credit history — presumably longer if there are aggravating factors such as a bankruptcy.
Not to the Starting Line
The issue came up on a recent deal involving a contract for deed (a type of Seller financing), where the would-be Buyer was firm that they needed a 7 year term.
They didn’t dispute the five-year timeline, but explained that they had two “underwater” investment properties likely to go through a short sale, which could take 18-24 months to play out.
In other words, they weren’t to the starting line yet.
Rehab Timeline Getting Shorter
Given that millions of homeowners lost their credit due to the housing downturn, the “credit rehab” timeline has been getting shorter — just not short enough (see, “Wall Street’s Latest Housing Play (Ploy).”
In fact, the downturn was of such historic proportions in both scope and magnitude — unrivalled since The Great Depression — I’d argue that an equally historic response is called for.
And I’m not talking about idiotic refinancing programs administered by the predatory banks themselves.
Or in the vast majority of cases, not.
Needed: Credit Amnesty
My proposal: a “credit amnesty,” halving the time Buyers’ credit is dinged as the result of a foreclosure or short sale, and a $500 billion pot for new mortgages funded directly by the federal government.
“Expensive,” you say?
Not compared to the largesse shown the big banks, credit rating agencies, and other ‘Crash culprits, not to mention the ongoing costs associated with the Fed’s ongoing policy of zero percent interest rates (“ZIRP”).
