VA Loan Reader Questions: Can I Do a Short Sale?
A reader asks, “Our house and property lost about 70,000 in value after the housing market collapsed, and in addition, we have found many things wrong with our house that we can no longer afford to repair. We have a VA loan and are not behind on our payments. We need to move due ot our recently expanded family. Can we do a short sale?”
There are two very important issues to remember when considering a short sale on a home purchased with a VA insured mortgage loan. The first is that short sales require the lender’s participation. Borrowers are not free to simply sell the property in a short sale transaction, as evidenced by the language used by the Department of Veterans Affairs in its publication Veteran Borrowers In Delinquency, which has the following description of a short sale:
“Short Sale – When the servicer agrees to allow a borrower to sell his/her home for a lesser amount than what is currently required to payoff the loan” (emphasis ours).
The second issue to keep in mind is that a short sale has credit and financial consequences. Borrowers who participate in the short sale of a home purchased with a VA loan may find their credit scores are negatively affected. If you agree to a short sale on a VA loan, you may be required to wait before you’re eligible to apply for a new VA mortgage loan in cases where there was a delinquency involved.
Additionally, if the Department of Veterans Affairs pays a compromise claim to the lender as a result of the short sale, the borrower cannot apply for a new VA home loan until the government has been paid back (or settled to the satisfaction of the government) for that compromise claim. Borrowers cannot initiate a short sale, unload the property, then turn around and simply apply for a new loan within a short time afterwards.
To put it another way, the short sale is definitely an option to consider under the right circumstances, but it is not something to be entered into lightly. The repercussions of a VA short sale include negative credit data, the two to three year wait between the short sale and another VA home loan, plus a possible debt to the government if a compromise claim is paid. For some home owners, the real question is not “Can I do a short sale on a VA home loan”, but rather, “SHOULD I do a short sale?”