Short Sales and Seasoning Periods for VA Home Loans

Short sales often get lumped together with foreclosure and its offshoot, the deed-in-lieu of foreclosure. But these aren't the same thing, and that can make a huge difference for homebuyers.

With a foreclosure, the bank is taking the home back from a borrower in default and forcing a sale to recover whatever they can.

A deed-in-lieu of foreclosure involves the borrower basically giving the house back to the lender. There’s no sale, so there’s no immediate financial recovery for the lender, but there’s also no expensive foreclosure process.

VA Loan Short Sale Waiting Period

While the VA doesn’t set a required waiting period, or seasoning period, for VA loan short sales, lenders typically do. The short sale waiting period on a VA loan is often two years.

Restoring VA Loan Entitlement after a Short Sale

If your short sale involved a VA-backed mortgage, the portion of your VA entitlement utilized on that loan will be inaccessible moving forward.

The only way to get it back would be to repay the entitlement you lost, which is rarely - if ever - a good financial move

However, you may have enough remaining entitlement - also known as second-tier entitlement - to purchase again without the need of a down payment.

VA Loan Short Sales and Credit

A VA short sale, like foreclosure, will negatively affect your credit.

Your score will take a hit, and how hard depends in part on what kind of credit you had beforehand.

Studies from the credit score firm FICO indicate consumers with good credit prior to short sale would likely notice a larger hit – up to 160 points – following a short sale than someone with poor credit.

VA Loan Eligibility after a Short Sale

When it comes to getting another home loan, you might need to spend some time working to improve your credit score.

The difference with a short sale is that you won’t automatically have to wait a full two years before being eligible.

In fact, if your credit score is still above the lender’s benchmark, you may be able to get prequalified for a VA home loan right after experiencing a short sale.

Overall, the wake of a short sale, it’s important to make sure you’re financially and emotionally prepared for another home loan. Sustainable, responsible homeownership is the goal.

Talk with a Veterans United loan specialist at 855-870-8845 to get a clear sense of your purchasing power.