There are many reasons why a military homeowner would want or need to sell their home in today's housing market. A permanent change of station (PCS) or even a change in marital status could be a few reasons requiring the sale of your home. Another could be a tough economic condition where you might not have anticipated financial hardship.
Depending on your area's housing market, 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.
VA Compromise Sale Requirements
If you are approved for a compromise sale, the VA steps in to pay the difference between the sale price and the remaining balance on your VA mortgage. There are several requirements that 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.
What is Considered Financial Hardship?
Because a borrower must demonstrate financial hardship, there are certain conditions that are considered as financial hardship:
- A decrease in income
- Relocation required
- Death of a principal wage earner
- Major medical expense
VA Loan Entitlement with the VA Compromise Sale
VA purchase loans use the borrower’s VA loan entitlement and to use the VA loan benefit again, the entitlement must be restored. While the VA agrees to pay the difference between the offer and how much is left on the VA mortgage, a portion of the homeowner’s entitlement is used to hold the loan until the VA is reimbursed fully.
Compromise sales are a VA benefit 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.