Waiting Period After Short Sale of a Home Purchased with a VA Loan

Borrowers are required to wait for two years before applying for a new VA home loan. A qualifying credit score and a record of dependable payments during the waiting period following a short sale is required.

Borrowers must apply to have their VA loan eligibility restored by filing a copy of VA Form 26-1880 to the Winston-Salem Eligibility Center.

One thing could prevent a buyer from getting eligibility restored right away. If the VA paid a compromise claim as part of a short sale, the borrower may be indebted to the government as a result of that claim. The Department of Veterans Affairs may not restore eligibility if the applicant still owes money to the government.

Here is the specific wording:

“…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”

If a VA loan applicant is notified that a debt to the government exists, or was aware of the debt prior to applying for the loan, the applicant should contact the VA directly to work out the details of repayment before applying for a new VA mortgage.

A borrower may still be able to take advantage of any unused VA loan eligibility. Any remaining entitlement may be allowed if a borrower did not use the full entitlement on the previous VA mortgage.

A borrower’s debt for a compromise claim may be factored into the debt-to-income ratio, unless the lender feels the compromise claim debt is too great compared to other financial factors. That debt may result in the need for a down payment, or a larger down payment than usual – requirements will vary from lender to lender.

FNMA to shorten waiting periods for some troubled borrowers to get new home loans

Good news for people who have given the deed on their house to the bank because of financial problems, or done a short sale to avoid foreclosure: You may not have to wait 4 to 5 years to requalify for financing to buy a home.

It could be as little as 2 years. FNMA issued a bulletin to lenders April 14, saying it is relaxing the previous rules that prevented loan applicants who had participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.

Homeowners who've done short sales — such as under the Obama administration's new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years.

The fine print: To qualify for a new loan in the minimum two years, most of these borrowers will need to come up with down payments of at least 20%.

However, if borrowers can demonstrate that their mortgage problems were directly attributable to "extenuating circumstances" — such as loss of employment, medical expenses or divorce — they may be able to qualify for new loans with minimum 10% down payments in just two years.

The main potential complication is in FNMA's credit rehabilitation requirements. To qualify for a new mortgage, FNMA expects borrowers to reestablish their credit enough to get passing grades from the company's automated underwriting system, which considers credit bureau data among other factors.

Source: Kenneth Harney, Washington Post Writers Group 4/25/2010