Most underwriting engines treat a late of more than 120 days on a mortgage as equivalent to a foreclosure – whether or not the home was foreclosed. If you were late more than 120 days, it is effectively the same thing from an underwriter’s point of view (back in the day, that was as long as it took to foreclose … not so much nowadays …). A short sale is a HUGE loss to a lender, just as a foreclosure is. Most dont see them as that different in terms of you as a credit risk, unless the loan was paid absolutely on time all the way up until they gave permission to sell.
If you were never more than 120 days late, you can challenge to have that script removed from your credit report, and it might make a difference.
While I think it would be the same issue, you might also ask the lenders what happens when they use Freddie Mac’s engine. Nevertheless, if the loan was more than 120 days late on the prior property within the few years before it sold, I would expect the same eventual outcome. Lenders SHOULD NOT be preapproving you if this information is clearly on your credit report, and I question any one that does. You will need to wait a few more years for a conventional loan.
You might also speak to a lender about a manually underwritten loan from a non conforming source (FHA, portfolio, etc). Make sure you have a DETAILED explanation of what happened, why you were forced to short sell (death in family? Serious illness? Job loss beyond your control?), why it will never happen again, and how perfectly you have kept all credit obligations since that time. A manual underwriter is more able to consider these compensating factors (things like having 20% down, good savings, and solid LONG TERM employment help, too).