Getting VA Loan Eligibility Restored After a Short Sale
Our 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 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.