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VA Loans and Short Sales: What You Should Know

A VA short sale can be a more attractive option than a foreclosure. Learn about the regulations and effects of VA short sales.

Published on December 16, 2022

If you're having trouble making your VA mortgage payments on time due to financial hardship, you're not alone. VA lenders are often willing to work with borrowers to avoid the added time, stress and cost of a foreclosure. One option is a short sale, if your VA lender will agree to it. Here's what you need to know if you’re considering a short sale.

VA Short Sale Guidelines

If you're considering a VA short sale on your current home, it's important to know that getting a future VA loan could be more difficult. VA lenders have a series of rules and requirements about issuing a VA loan after a short sale. This protects the lender’s interests, as they could be worried about your ability to make payments in the future.

VA Short Sale Seasoning Period

Most lenders will typically require you to wait two years after a short sale before you're eligible to apply for another VA loan. This is called the seasoning period or the VA short sale waiting period. While the VA itself doesn't have a set waiting period, lenders are free to make their own rules about when they're willing to consider you for future loans.

VA Loan Entitlement After a Short Sale

If you opt for a short sale on a VA loan, you will lose part of your VA entitlement. This means you will have less guaranteed money from the VA for any future home purchases, which can impact your $0 down payment power. With typical home sales, if the money received is enough to cover the remaining mortgage balance, your entitlement will be restored. This isn’t the case with short sales, meaning your entitlement will be tied up in the home.

If you want another VA loan for a future home purchase, you can still use any remaining entitlement to secure that financing. If the sale price of the new home exceeds your remaining VA entitlement, you’ll need to come up with 25% of the difference for a down payment.

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Veterans United Home Loans is a VA approved lender; Mortgage Research Center, LLC – NMLS #1907 ( Not affiliated with the Dept. of Veterans Affairs or any government agency. Not available in NV. 1400 Forum Blvd., Columbia, MO 65203. Equal Housing Lender

VA Short Sale vs. Foreclosure

Though a short sale and a foreclosure both happen when you can't make payments on your home loan, it's important to understand that they are not the same thing. They are two different solutions to a similar problem.

A foreclosure occurs when the bank takes back your home as a result of default, or the inability to pay the loan back according to your agreement. Foreclosure is initiated by the lender, typically after a certain number of missed payments.

Once the bank decides to foreclose, things usually move quickly, and the damage to your credit and finances can be severe. A foreclosure stays on your credit record for seven years, and you won't be eligible for another mortgage for up to five to seven years.

A short sale also occurs if you cannot make payments and are delinquent on the loan. Unlike a foreclosure though, a short sale is a voluntary process.

If the lender agrees, you can sell the house for less than the outstanding debt on the loan. The process to request a short sale, have it approved and then sell the house is lengthy, but it can be a great alternative to a foreclosure. A short sale guarantees the lender will recoup some or even most of their money, and you can avoid the financial costs of a foreclosure.

Does a VA Short Sale Affect My Credit?

A short sale will have an impact on your credit score, but it’s generally not as damaging as a foreclosure. Like a foreclosure, a short sale will remain on your credit record for up to seven years. It is important for you to rebuild your credit during that time, particularly if you want to buy another home in the future.

No homeowner wants to give up their home due to financial struggles—but sometimes it's the best option. A short sale allows you to take some control of the situation rather than allowing the lender to foreclose. When it comes to VA loans, a short sale might be a good option to help preserve your credit and allow you to take out a new VA loan once you're back on your feet.