There are many reasons why a military member would want to sell a home in today's housing market. A permanent change of station is one reason some are motivated to sell, another is change in marital status requiring sale of the home. Whatever the reason, if you purchased a home using a VA loan when the market was strong, you might not have anticipated selling the home under today's conditions.
Depending on the housing market in your area you could wind up taking a loss on the sale of the home you purchased with a VA loan. For homeowners struggling to make ends meet, that loss could be financially devastating.
Fortunately, some VA mortgage holders have an alternative called the VA compromise sale. If you put your home up for sale and get an offer lower than the payoff amount on the VA home loan, you can send a request to the VA for a compromise sale. Once the VA receives your request, a representative reviews your VA loan with the finance company.
If you are approved for a compromise sale, the VA steps in to pay the difference between the offer and the amount which remains due on the VA mortgage. There are several requirements which must be met for the VA to approve a compromise sale:
- The borrower must demonstrate financial hardship;
- The home must be sold at fair market value based on current market conditions;
- No second liens are permitted (the VA says an exception may be made if the amount is "insignificant");
- Closing costs must be typical for such a sale;
- The VA compromise sale must cost the government less than if the home went into foreclosure;
- The sale requires a VA appraisal;
- The borrower must provide a statement explaining why they must sell the property.
For VA loans originated prior to December 31, 1989, the seller may be required to sign a promissory note and enter into a payment plan to compensate the VA for a portion of the compromise claim payment. According to the VA, the amount will be less than what would be owed if the seller did not have VA assistance and the payment plan is based on the seller's financial situation and ability to pay.
Compromise sales are provided to help VA loan holders in financial distress, and to reduce the number of foreclosures. Contact the VA to learn if you qualify for this special VA mortgage assistance in selling your home.