Using a VA Insured Mortgage to Purchase a Home After a Short Sale

I have had a lot of people ask me about how to buy a home after a short sale using FHA financing but it’s becoming more and more common that people are considering buying a home after a short sale using financing insured by the Veteran’s Administration.  These guidelines use to be murky but the issues concerning waiting periods after a short sale and underwriting guidelines are coalescing around an interesting blend FHA guidelines and Fannie Mae guidelines. There are six unique stipulations and they are as follows:

• The borrower must have made all mortgage and installment payments within the month due for the 12 months prior to the short sale - This is the same as the FHA rule
• The short sale must serve as payment in full on the existing lien(s) and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff - This is the same as the FHA rule
• Borrowers may not execute a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance - This is the same as the FHA rule
• If a borrower was delinquent on the mortgage at the time of short sale, iLoan will not approve the borrower for VA financing for at least two years after the date of the short sale unless the borrower experienced significant extenuating circumstances and the loan receives and automated underwriting “approve” or “accept” response - This rule is borrowed from the Fannie Mae guidelines for buying after a short sale except Fannie Mae requires 10% down after 2 years where VA financing will allow for 0% down
• Borrowers having short sales will not be approved if they also have a previous bankruptcy or foreclosure at iLoan
• Borrowers having a short sale within the most recent three years and credit scores at or under 639 are ineligible at iLoan

Outside of these stipulations, only the basic requirements for a VA loan must be met.  While these 6 provisions are inflexible, outside of them, we approach these would-be veteran home purchasers with an open mind as we see them as an excellent credit risk. Equally important to finding a good loan officer for this type of transaction is finding a good and enlightened Realtor.  Their role will be key in in executing the sale of the current home (if it’s not already sold short) and the selection of the new property if the new property cannot be similar or superior within a reasonable commuting distance from the previous property.  Particularly, they should know that you don’t need to be late on your mortgage to do a short sale in most instances and be willing to guide you through that process without a technical default.  That will be necessary for a would-be buyer if they don’t want to suffer a long waiting period.