mortgage

Can a VA loan be used to buy a short sale?

Steve McLindenDear Real Estate Adviser,
I am a veteran. Will the U.S. Department of Veterans Affairs give me a loan for a home available by short sale?
-- Nate A.

Dear Nate,
Yes, short sales are eligible for VA-backed financing as well as foreclosure and bank-owned purchases.

For clarity's sake, however, the VA doesn't actually issue home loans, but it does provide guarantees that protect the lender should the borrower default, much like Federal Housing Administration lending program guarantees. These guarantees allow the lender to waive down payment requirements and offer more favorable interest rates and other terms to the buyer. Most veterans, as you may know, are eligible for a $36,000 basic entitlement plus a $68,250 bonus entitlement for a total of $104,250, though lenders will typically lend four times that amount with no down payment required -- even more in certain counties where the cost of living is higher.

You should know, however, that short sales can be exasperating because they frequently fall apart after months of work. Also, the VA has stricter appraisal requirements regarding a home's condition than conventional lending programs do, which is relevant because short-sale sellers are distressed and typically have no motivation or money to make repairs. Moreover, the VA more closely restricts what can and can't be paid for by the home purchaser.

That doesn't mean you shouldn't pursue a VA-backed short-sale property purchase, especially if you're getting a great deal on what you consider an ideal home. But be sure to seek out a broker experienced in both short sales and VA loans; there should be plenty out there given the market's recent history and the number of veterans seeking housing. Agent experience is significant because short sales typically require patience and constant communication with a variety of players such as other agents, loan officers, guarantors and escrow and title companies. Such an agent can help you structure an offer that's competitive with offers that don't require the sellers to incur a number of costs the way VA loans do. But be prepared to hang in there at least three months or perhaps longer.

If you don't have your heart set on one specific short-sale home, target several to broaden your possibilities and diminish your disappointment should a deal fall apart. Hint: Deals involving foreclosed homes already owned by banks are typically smoother and move along much faster.

Good luck in your homebuying. And many, many thanks for your service!

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