Short Sales and Waiting Periods for VA Loans

VA loan short sales are often incorrectly lumped together with foreclosures or deeds-in-lieu of foreclosures. When you’re experiencing severe financial difficulties, it’s crucial to have a clear understanding of your available options and their potential consequences.

If you're considering a VA loan short sale, you need to know how they are distinct in terms of procedure, implications and subsequent waiting periods. Service members may also qualify for VA loan short sale forgiveness when faced with hardships.

In a VA loan foreclosure or deed-in-lieu of foreclosure, lenders frequently make back far less or none of the money they lent you. They only agree to these measures when there are no other foreseeable alternatives.

VA loan short sales allow VA lenders to recoup at least some cash while avoiding the expense and time involved with foreclosure. In turn, borrowers are relieved of their outstanding debt on their VA loan. While they're not ideal, short sales are typically easier for everyone involved than alternatives.

However, short sales, foreclosures and deeds-in-lieu of foreclosures can still severely damage your credit. They also have waiting periods before you can apply for another VA loan.

VA Loan Short Sale Waiting Period

While the VA has no set waiting period following a VA loan short sale, VA loan lenders commonly set a mandatory waiting period of two years before they will accept your application for a new VA loan.

Two years may sound like a long time, but it's actually much shorter than other home loan types. Here’s an overview of how VA loans compare:

Applying for a VA Loan After a Short Sale

If you're planning to apply for a VA loan after a short sale, it’s important to understand what challenges you might face and how to prepare for them.

A VA loan short sale will likely lower your credit score by over 100 points, depending on what kind of credit you had beforehand. Since credit plays a key role in VA loan approval, rebuilding your score during the waiting period is critical. That might include paying down debts, making on-time payments and avoiding new credit issues.

Your VA loan entitlement likely took a hit as well. Veterans and service members who have used their basic entitlement on the home that was sold in the short sale can only restore it by repaying the loan in full, along with any losses the lender absorbed. But that doesn’t mean you’re out of options.

Luckily, many Veterans can still use their remaining second-tier entitlement, which allows you to take out another VA loan without repaying the previous one in full. You’ll still need to meet lender guidelines and VA loan limits come into the picture with diminished entitlement.

VA Compromise Sales and VA Loan Short Sale Forgiveness

When facing a VA short sale, you may be eligible for a VA compromise sale. In a VA compromise sale, the VA agrees to pay the remaining balance owed after a short sale. This can be a more cost-effective option for the VA compared to a foreclosure.

A key requirement to qualify for a VA compromise sale is demonstrating financial hardship, which could include a significant decrease in income, relocation due to Permanent Change of Station (PCS) orders or the death of a spouse or principal wage earner.

If you’re struggling to make your monthly VA mortgage payment, contact your VA loan servicer as early as possible. The VA also offers support programs that can help avoid foreclosure. If your VA-backed loan becomes 61 days past due, the VA will automatically assign a loan technician to your case to assist you.

Whether you're recovering from a short sale or trying to prevent one, understanding your VA loan options puts you in a stronger position to make informed, confident decisions about your homeownership future.