VA Mortgage Underwater: What Are the Options?
I had an agent contact me today with the following scenario:
A potential client interested in selling their home was, after reviewing comparables, very submerged underwater. They had bought the home just a few years ago and with declining values now found themselves upside down by a good $25,000. She explained what their options were and also discussed a possible refinance. She asked whether they could refinance their VA loan into a lower interest rate since the monthly payment was really what had become unbearable for them.
I explained that her clients were in the same unfortunate boat that so many are these days. The good news and bad is their ability to work with a VA loan. Let me explain why this is.
VA does have an Interest Rate Reduction Loan (IRRL for short) that would allow potential "upside down" homeowners to refinance without an appraisal therefore bypassing the loan-to-value issue. However, while VA allows it, I don't know of any investors that will approve an IRRL without an appraisal. It's one of those crazy lender overlays that really doesn't follow the intention of the loan program and does (in my opinion) an incredible disservice to the veteran. But, we deal with the cards we're dealt.
Another option is a VA Compromise Sale. If you're in Colorado or any of the surrounding areas, the VA Denver Regional Center will offer your clients the latest updates on this program. The VA Compromise sale does have many benefits, but keep these important factors in mind:
· The property must be sold for fair market value.
· The closing costs must be reasonable and customary
· The compromise sale must be less costly for the Government than foreclosure
· There must be a financial hardship on the part of the seller
· On loans that originated on or before December 31, 1989, the seller must be willing to sign a promissory note
· There must be no second liens or other liens (unless the amount is insignificant).
· The seller must first obtain a sales contract in order to be considered for the program.
To protect the seller's interest, the seller should make the sales contract contingent and/or subject to the approval of a VA compromise sale.
VA Compromise Sale Information Packet
Before making any decisions, I would strongly urge your clients to call the Veterans Administration directly and discuss their options. VA is very committed to helping their homeowners avoid foreclosure.
Encourage them to start the conversation now before they've missed several payments and become limited in their options. The Department of Veterans Affairs has counselors on staff to walk veterans through their choices and will do what they can to keep that homeowner where they should be - in their home!
If you have clients moving to Colorado Springs where they'll be stationed at Fort Carson, Schriever AFB, Peterson AFB or the Air Force Academy please have them visit our VA Website VA Mortgage Insider Tips to find out more about their benefits. Plus they can instantly download our FREE e-book Insider Secrets Mortgage Companies and Loan Officers DON'T want you to know about Veteran Loans.
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