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VA Loan Eligibility and Short Sales

For those who have taken out VA mortgage loans in the past, gotten into financial trouble and had to resort to a short sale to avoid foreclosure, it's easy to assume you're locked out of the housing market because of those circumstances. But that may not be the case.

A short sale is a transaction where the lender allows the borrower to sell for less than what is actually owed on the property.

Short sales sometimes involve something called the VA compromise claim. According to the VA official site, "If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, the VA may pay a ‘compromise claim’ for the difference to help you complete the sale. You must contact the VA to discuss the situation and get prior approval for a sale with a compromise claim payment. Some mortgage companies are authorized by the VA to approve a sale with a compromise claim."

Avoiding foreclosure by using a short sale does affect a credit rating; unfortunately short sales lower credit scores in many cases, and there is usually a "seasoning period" borrowers must wait out before they are allowed to apply for another home loan.

The good news is that a seasoning or waiting period for VA loan borrowers may not be as long as for conventional borrowers in similar circumstances.

Some lenders don't require any waiting period at all. If the borrower has a history of good credit since the short sale and a qualifying credit score, it could be possible to use the VA loan program right away. The circumstances leading to the short sale, as well as credit and payment behavior post short sale are very important factors in deciding when a borrower can apply for a mortgage again.

But some lenders actually have no seasoning period following a short sale in some instances.

If you lose a VA-backed loan to a short sale, you also lose the entitlement put to use on that loan. The only way to get it back is to repay the claim in full to the VA. But borrowers may have enough VA loan entitlement remaining to purchase again with no down payment.

Talk with a lender about your VA home loan picture in the wake of a short sale to determine your future eligibility.

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