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 the good news is, that is not true.
While borrowers are required to wait as long as three years before applying for a new VA home loan, there are lenders willing to work with a buyer after only a two-year wait.
This is true if the buyer has a qualifying credit score plus a record of dependable payments during the waiting period, sometimes called a “seasoning period” following the short sale.
If you want to apply for a new VA mortgage after the waiting period, you must also apply to have your VA loan eligibility restored by filing a copy of VA Form 26-1880 to the VA Winston-Salem Eligibility Center. The VA will process the paperwork and let the lender and applicant know when restoration is official.
One issue could prevent you from getting eligibility restored immediately--if the VA paid a compromise claim as part of a short sale, you may be indebted to the United States government as a result of that claim. Do you still owe money as a result of a compromise claim?
The Department of Veterans Affairs may not restore eligibility until the debt is resolved.
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.
Borrowers can still technically use any leftover VA loan eligibility if available. That said, any remaining debt to the government from the VA compromise claim could be factored into the borrower’s debt-to-income ratio, resulting in the need for a down payment or a larger down payment than usual. Your experiences in this area may vary from lender to lender.