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.
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.