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VA Loan Reader Question: Seasoning Periods Following a Non-VA Short Sale

A reader asks, “What if the loan short sale was an FHA loan, not VA? We were told two years then we can use our VA. We have never used the VA loan.”

In cases such as these, the VA may require a waiting period if there were delinquent payments on the mortgage, even if the original loan wasn’t a VA guaranteed mortgage. But the minimum waiting time established by the Department of Veterans Affairs isn’t the only requirement at work.

Borrowers who expect to get a VA home loan quickly following a short sale may be disappointed–some lenders may require a longer seasoning period or waiting time depending on the circumstances.

The short sale is not to be entered into lightly. For some it’s the best available option to avoid foreclosure, for others it’s a way to get from under a property which is not worth as much as the amount owed on it. Regardless of the motivation, borrowers should carefully research short sales, the impact a short sale can have on your credit, and review long term financial goals before committing.

Here’s some information from one of the leading credit reporting agencies, Experian.com, which states of short sales, “When you pay less than originally agreed on any loan, the impact on your credit report almost always will be negative. It would be rare for a lender to report the mortgage as “paid” and forgive the remaining amount. In that instance, assuming all your payments had been made on time, there would be no negative impact on your credit scores.”

“In the vast majority of instances, however, a short sale is reported as “settled,” which means that you reached an agreement to repay only a portion of the total amount. The remainder is written off as a loss by the creditor.” The VA does not necessarily view a short sale as a negative factor if there is no delinquency, but the lender may consider it a negative factor in some cases.

If you wish to be a home owner following delinquent payments and a short sale, whether you’re selling a property with a conventional, FHA, or VA guaranteed mortgage, expect to wait before you can apply for a new mortgage loan. VA rules aren’t the only ones at work–the rules of your participating VA lender also have a say in what happens next.

Do you have a question about VA home loans? Ask us in our comments section.

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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.

12 Responses to VA Loan Reader Question: Seasoning Periods Following a Non-VA Short Sale

  1. M says:

    so how do we know if we will have to wait two or three years????

  2. Leo says:

    Is it true that if you have a short sale but you don’t miss any payments on your current mortgage that you can get a VA loan immediately after the sale? Here’s a quick rundown of my situation. I just got a new job so I have to move across the state (PA). I owe 270,000 on my house but it won’t appraise for more than 265,000. After closing costs and realtor fees I’m looking at it costing 285,000. Thats $20,000 that i would have to come up with that I don’t have. I am currently NOT in a VA loan but would like to use it to purchase my new house. My best option right now is to keep making my payments but try to do a short sale so the bank will cover the difference at settlement. Then but the new house with the VA loan. Any thoughts/ideas would be greatly appreciated. Thanks.

    • Joe Wallace says:

      Hi Leo, thanks for your question. A short sale, regardless of circumstances, can affect your credit and will definitely affect your ability to purchase a new home in the near term. Borrowers should never expect to walk into a new home loan immediately following a short sale. VA regulations require a mandatory two year seasoning period following any short sale, and lenders often require longer wait times. More information is here: http://www.vanewsblog.com/2012/04/va-loan-reader-question-seasoning-periods-following-a-non-va-short-sale/

      • Leo says:

        Joe,
        I read online that if you stay current in your payments and you have an extenuating circumstance for having to do the short sale (relocation for job for example) that the 2 year waiting period would be waived. I just want to make sure so that I don’t screw myself and my family but that is my exact situation. Thanks again.

        • Joe Wallace says:

          Hi Leo, the only program I’m personally aware of that makes such an allowance is the FHA–do you remember where you read this information?

          • Leo says:

            Joe,
            This is the website that I saw it on-
            http://valoanguy.com/faqs.html

            This is what it said-

            Q:Can I get a VA loan after a short sale in California?
            A: Yes you can get a VA loan two years after your short sale closes. There is a special circumstance where you can get a VA loan immediately after a short sale if you did not miss any mortgage payments leading up to the short sale and you had an extenuating circumstance for having to short sell (relocation for job for example).

            Thanks again.

          • Joe Wallace says:

            Just to be sure, I’d call the VA directly at 1-800-827-1000, but I’m not aware of any exceptions to the two-year seasoning period. Thanks for letting me know where you found the information. I’m guessing VALoanGuy has VA mortgages confused with the FHA loan rules on this one…

  3. Leo says:

    Will do, thanks Joe for the info.

  4. Rick says:

    Joe,

    Thanks for the info. I’m currently at 18 months after a non-VA short sale. I called VA and was pleased to find my old VA loan, which had been assumed in 1979, was paid in full – I now have a new CoE.

    The short was literally the only ding on my credit in the last 30 years – and the bank didn’t take a very big hit (in fact they made money, but that’s the dirty secret no one will discuss).

    Accompanying and contributing to the short was the collapse of a marriage and business and a late-onset condition left over from Vietnam. The granting of full/permanent 70%/30% VA disability took less than a year; with Social Security I’m netting about $53k tax free (and am exempt from FL property taxes).

    Three months ago my Fair Isaac was 736; FICO 715; Beacon 719. They’re probably higher now. So,(thanks for your patience – I know this is long and potentially redundant): will that affect the seasoning period if I’m ready to buy now? And will it still be $0 down and competitive interest? I don’t want to nail you down and I have read your other answers and the article – but do my circumstances affect that? Houses are really flying right now and I’d hate to get nailed on both ends of that mess.

    Thanks in advance (if I could get an email if an answer is posted, I’d appreciate it).

    • Joe Wallace says:

      You’d need to discuss the details of the seasoning period with the lender–much would depend on the lender’s participation in any case regardless of VA minimums or exceptions–if the lender is not willing to work with you, the VA minimum requirements don’t mean anything–the VA can’t force the lender to issue the loan. The first hurdle would be to find a willing lender.

  5. Rick says:

    Roger that. Thanks. Happy New Year.

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