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.
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.
What is a VA loan short sale?
A VA loan short sale is when the VA lender or servicer allows a homeowner to sell their home for less than they owe on the loan. Short sales let VA lenders recoup at least some cash and avoid the expense and time involved with foreclosure.
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.
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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.
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