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Getting VA Loan Eligibility Restored After a Short Sale

Our most recent blog posts have covered topics related to the short sale of a home purchased with a VA loan. It’s easy to assume you’re locked out of the housing market after having to resort to a short sale to avoid foreclosure, but this is simply not true.

Borrowers are required to wait before applying for a new VA home loan when a delinquency is involved. But there are lenders–including VALoans.com–willing to work with a buyer if the buyer has a qualifying credit score and a record of dependable payments following a short sale.

Borrowers who decide to apply for a new VA mortgage after the waiting period must apply to have their VA loan eligibility restored by filing a copy of VA Form 26-1880 to the Winston-Salem Eligibility Center. The VA will process the paperwork and let the lender and applicant know when restoration is official.

But there is one thing that could prevent a buyer from getting eligibility restored right away. If the VA paid a compromise claim as part of a short sale, the borrower may be indebted to the government as a result of that claim. The Department of Veterans Affairs may not restore eligibility if the applicant still owes money to the government.

The specific wording on the VA official site includes the following;

“…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”

If a VA loan applicant is notified that a debt to the government exists, or was aware of the debt prior to applying for the loan, it’s a very good idea to contact the VA directly to work out the details of repayment before trying to apply for a new VA mortgage.

Another important fact to remember–you may still be able to take advantage of any unused VA loan eligibility. If a borrower did not use the full entitlement on the previous VA mortgage, any remaining entitlement may be allowed.

A borrower’s debt to the government for a compromise claim could be factored into the debt-to-income ratio unless the lender feels the compromise claim debt is too large compared to other financial factors. Such debt might result in the need for a down payment, or a larger down payment than usual–requirements will differ from lender to lender.

Bruce Reichstein

About Bruce Reichstein

Bruce Reichstein is an Expert on (VA) Military/Veteran Home Loan Guidelines for over 26 years — www.VALoans.com. He is an experienced VA Loan Mortgage Banker who is passionate about assisting US Military Veterans utilize their Veteran Eligibility to purchase a home.

10 Responses to Getting VA Loan Eligibility Restored After a Short Sale

  1. Terry says:

    If I had an FHA loan that I did a short sale on, Can I get a VA loan to buy a new home?

  2. Terry says:

    My loan was paid out and a Full & Final Satisfaction of Debt was issued. How long must you wait to apply for a lesser loan with the VA, Or can I even get a VA loan, now that I done a short sale..

    • Joe Wallace says:

      Hi Terry, you would have to wait a minimum of two years, but some lenders require a three-year wait to apply for a new home loan following a short sale.

  3. linda says:

    I thought there was a program to help bail out the housing lenders that if you purchased a house within a certain price range you did not have to pay back the compromise.

  4. Chester Tracy says:

    We had a short sale and bankruptcy. The bankruptcy was discharged in December of 2011.The short sale completed December 2012. My concern is that we have moved in with my daughter and pay no rent as we helped her buy her house. We are saving for our home purchase in the future.
    My question is in reguards to not showing a payment history for the time we are waiting to be eligible again.

  5. Suzanne says:

    I owned a home prior to marrying my husband – who is a veteran.
    I had a short sale on my home, that is not in my husbands name.

    My husband now wants to use his VA benefit to buy a home.
    Both of our credit scores are in the mid to high 700′s . My husband has a good pension, we have about 300K combined in savings and a 457 plan. I’m still working making over 60 K a year.

    We were turned down by a lender due to my short sale being only 1.5 yrs old. And without my income, my husbands debt to income ration appears high, since currently own our home in California.

    Should I keep shopping for a lender? or do I need to wait the 2 yrs.

    Our dream house is currently on the market and we would hate to miss out.

    thanks for your help

    Suzanne

  6. Jeff says:

    Hi. Did a Deed-In-Lieu on my VA loan for a primary residence that was finalized in April 2010. Amount of outstanding loan was $165,000 and sold it for $85,000. The original VA loan was for $175,000.
    Can I get another VA loan? Where can I find information on this question?
    Thanks.
    –Jeff

    • Joe Wallace says:

      Certain companies have different overlays. If you were current on your mortgage payments up to the date of the short sale and for the preceding 12 months, then that aspect of your credit would not prohibit you from obtaining a VA loan from us. If you were delinquent on the mortgage payments you will need to wait 12 months from the date of the last delinquency. This is, of course, subject to review of the pay record of your other credit obligations.

      We ask that all of our applicants go to our website at http://www.valoans.com and apply online. We speak with many Veterans on a daily basis and prefer to give each one of them the attention and respect they deserve. Once we have all of the information in front of us, we can make a well informed decision. We will then contact you shortly. As a reminder, our site is secure.

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