VA Loan Short Sale Guidelines
Updated on 6/17/2013
By Daniel Duffield
VA Loan Short Sale
To counter the difficulties of owning a mortgage while being subject to relocation, the Department of Veteran Affairs (VA) offers guaranteed VA loans. These loans provide tremendous advantages and benefits compared to traditional loans, although only military veterans and certain active duty servicepersons can acquire these specialized loans.
Check VA Loan Rates & Qualify for a VA Loan at Lender411.
When VA borrowers undergo a short sale, the transaction is referred to as an “offer in compromise,” a “compromise claim,” or a “compromise sale.” Regardless of the name, the process is essentially the same as a standard short sale, in which a homeowner receives an offer to purchase his/her home for an amount less than the amount needed to pay off a mortgage loan balance. When a borrower requests an offer in compromise, the VA and the mortgage company meet to review the situation. If approved, the VA takes responsibility for paying the difference between the home sale proceeds and the veteran's mortgage balance.
For information regarding the acquisition of a VA mortgage after a short sale, visit our Lender411 VA Loan after Short Sale page.
VA Short Sale Eligibility Criteria
In order to qualify for a VA short sale, borrowers must satisfy the following eligibility requirements:
- The borrower must prove that he/she is experiencing a financial hardship.
- Property must be sold at fair market value based on conditions in the current market.
- Property must be free of secondary or other liens.
- Closing costs cannot exceed what's considered reasonable and customary.
- The cost of the compromise sale must cost the VA less than the cost to foreclose on the property.
- Seller must provide a written statement explaining why the sale is necessary.
VA Short Sale to Avoid Foreclosure
One of the most common reasons for performing a VA short sale is because it is the lesser of two evils, the other being foreclosure. With a significantly greater expense and much more hassle to both borrower and lender, foreclosures provide no benefits and should be avoided at all costs.
For more options and information regarding how to avoid undergoing a foreclosure with a VA mortgage loan, visit our Lender411 VA Foreclosure page.
VA Loan Foreclosure vs. Short Sale Pros & Cons
VA Foreclosure Pro
| VA Short Sale Pro
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VA Foreclosure Con
| VA Short Sale Con
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Steps for a VA Short Sale
1. Contact your lender. The first step in completing a VA short sale is to contact your VA-approved lender to mitigate the losses on the transaction. You can verify whether or not your lender is VA-approved by visiting the Veteran Affairs website. If your lender has not been approved, contact the VA. Let your lender know that you cannot keep up with monthly mortgage payments and will be initiating a short sale.
2. Hire a real estate agent. To make the most of a short sale, hire a real estate agent with previous experience with short sale transactions. Discuss the situation with your lender and ask for a recommendation for a reliable agent. An alternative way to find a real estate agent would be to contact a local real estate broker and inquire who on the staff has experience with short sales. Ideally, he or she will have previous experience specifically with VA compromise sales.
3. Assess the market value. Once you have hired an agent, ask him or her to assess the house’s fair market value by composing a market analysis. This should give sellers a reasonable sale price range.
4. Sign the listing agreement. With your agent, sign the listing agreement to put the home on the market. The home seller should ensure that the agreement contains a clause to protect him or her from being held responsible for the agent’s commission in the event of the VA refusing the VA compromise sale transaction.
5. Evaluate offers. When undergoing a short sale, VA sellers should only accept purchase offers at the fair market value of the home, as the Department of Veteran Affairs will not accept offers for less than this amount. Request that your real estate agent counter the offer in order to make it dependent on VA approval.
6. Fill out a financial statement. Once an acceptable offer has been received, homeowners must fill out and sign a financial statement form; this can be acquired from your lender or may be downloaded directly from the VA website.
7. Send a compromise sale request. Finalize a compromise sale request letter and the Compromise Agreement Sale Application. Once these documents have been completed, the agent will assemble these documents as well as the purchase agreement to be sent to either the seller’s VA approved lender or directly to Veteran Affairs.
8. Wait for approval. After the documents have been sent, sellers only need to wait for VA approval. Depending on the area and several other factors, the processing time will vary.
Get a Quote For a VA Loan
If you would like to secure a VA loan or other home mortgage loan, visit our Lender411 Get a Quote page to conveniently shop around for interest rates from nearby lenders in your region. Start comparing loan offers today and take the first step toward a smart mortgage.
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tammil_999_834 October 21, 2012 at 10:29am PDT
My husband and I are in the process of purchasing a home which is going through a VA compromised sale. The current lender was requires to have a VA appraisal done on the property. We are also using a VA loan to purchase the property. Everyone involved was under the impression we would be able to use the previous appraisal as it had not been 6 months since it was done. Two weeks from closing and we were told the VA changed the guidlines regarding appraisals and we had to have yet another appraisal because our names were not on the first one and as of Jan 2012 you could no longer change names on the appraisal. I just want other vets to know if they are planning on purchasing a home going through a VA compromised or short sale, even though a VA appraisal may have been done already you will still need to have your own VA appraisal done as well.
joekar_781_628 October 13, 2012 at 9:20am PDT
I think the HARP 2.0 program has done a lot of good for homeowners but there is still room for improvement. Borrowers should have the choice to shop around at any bank they want and not essentially be tied to using their existing servicer in order to use the full benefits of the program (such as no limit on the LTV), which appears to be the case from what I've experienced. Great article and keep up the good work.Thanks!Joewww.gusdahleh.com
decoda_679_435 October 11, 2012 at 2:40pm PDT
Comments What are the guidelines for a second lien holder for payoff amount ? And for assessments owed to the Homeowners Association? Where are these guidelines written? Our first loan is a VA loan thru Bank of America. Our second loan went to collection and they won't settle for the amount the VA loan specialist says they will pay. We have a purchase offer that is going nowhere and fast because the second will not settle.
deltag_416_732 November 12, 2011 at 2:58pm PST
I would like to purchase a home, after experiencing a short sale in August 2010. I am a veteran, and would like to use my loan after 14 years of using FHA. I was told by VA reps that I would be eligible to buy this year. Is this true?
deltag_416_732 November 12, 2011 at 2:54pm PST
I had a short sale in August 2010, under FHA guidelines. I am now looking a buy a home under VA guidelines, because I have not used my benefits in over 13 years. I have about 36,000 left on my loan. I was told that I could purchase a home 2 years after the short sale, under VA guidelines.