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VA Loans, Short Sales, Deed-In-Lieu, and Foreclosures

Many people contact us through our comments section asking about VA loans in the wake of short sales, deed-in-lieu, or foreclosures. The most frequently asked question has to do with when the borrower is eligible to get a new VA home loan following any of these actions, or filing bankruptcy.

It’s very important for VA borrowers to understand the implications of a short sale or other actions mentioned above. VA rules and those of individual lenders require a minimum waiting period that prevent a borrower from walking out of one loan directly into another one in cases where a delinquency is involved.

Borrowers often don’t realize this rule exists at the time they are considering a short sale, bankruptcy or other measures. But the seasoning period isn’t the only thing that can force a borrower to wait before applying for a new home loan.

At the VA official site, there’s a set of frequently asked questions about these issues. One of them reads, “My prior loan was foreclosed on, or I gave a deed in lieu of foreclosure, or the VA paid a compromise (partial) claim. Although I was released from liability on the loan and/or the debt was waived, I am told that I cannot have my used eligibility restored. Why?”

The answer is simple. In any case where a VA borrower’s debt is waived or paid off by the U.S. government, when the government takes a loss on the transaction, that loss must be repaid by the borrower before the VA will restore loan eligibility.

When it comes to VA loan assumption, the circumstances are slightly different, but there are special requirements for the borrower who wants to consider a new VA home loan. According to, “In this case the veteran’s eligibility can be restored only if the qualified assumer is also an eligible veteran who is willing to substitute his or her available eligibility for that of the original veteran. Otherwise, the original veteran cannot have eligibility restored until the assumer has paid off the VA loan.”

Again, VA loan applicants and home owners need to be aware of these issues when considering short sales, loan assumptions, deed-in-lieu, or foreclosure. It’s simply not possible in these cases to transition from one mortgage to a new mortgage within a short period of time. The required seasoning period or other actions associated with these scenarios force the borrower to move more slowly towards owning a new home.

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About Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.

7 Responses to VA Loans, Short Sales, Deed-In-Lieu, and Foreclosures

  1. fred says:

    what if the loan short saled was a fha loan not VA. we were told two years then we can use our VA. we have never used the VA LOAN

    • Joe Wallace says:

      The two-year minimum stands regardless of what type of home loan the short sale was issued on. In addition, many lenders require a three year wait regardless of the VA two-year minimum.

  2. Tricia says:

    Question: I was only borrower on loan and did a shortsale. Can my husband get a mortgage on his own thru VA and my short sale not affect him from qualifying?

    • Joe Wallace says:

      The answer would depend on whether the VA loan applicant was in any way financially obligated on the VA home loan or not or whether you would be obligated on the new loan. If the VA loan applicant was not a co-signer on the loan that was involved in the short sale and you are not obligated on the new loan the scenario you mention could be possible. For more information on your specific circumstances, call the VA directly at 1-800-827-1000.

  3. Aaron says:

    Can i use a va home loan to get a house that was a short sale or a forclosure.

  4. Michael says:

    If I did a deed in lieu will it affect other VA benefits like disability and the GI bill?

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