Purchasing a home after experiencing a short sale typically requires some type of waiting period no matter what type of financing you use. There are exceptions to the rule when it comes to VA loans, however, as there are different circumstances that can come up as well as different things that lenders will allow. The VA themselves do not have any hard and fast rules in regards to who is eligible after a short sale. The VA does suggest a 2-year waiting period, but it is not fully enforced.
The Typical Wait
The average lender is going to require you to wait 2 years after a short sale before they approve you for any type of lending, including VA loans. This is because it gives you time to get your credit back in control and to get control of your finances. There are exceptions to the rule, however:
- If you did not make late payments leading up to the short sale, the lender may be willing to forgo the waiting period and give you a loan right away provided your credit is in good standing and you have all of the qualifying factors for the loan
- If your credit score is high, which in VA standards means a credit score of 660, and your short sale was paid in full, which means the lender is not holding out for more money from you, then the new lender might give you a VA loan right away.
If you do not have any of the above exceptions or you meet any of the below requirements, you could wind up with the typical 2-year waiting period. These instances include:
- If you took a short sale strictly to take advantage of the declining market
- If you did not make your payments on time leading up to the short sale, meaning you were delinquent more than once on your loan, then you are not eligible
- If you had a bankruptcy or foreclosure along with the short sale, you cannot speed up the waiting period
Qualifying for the VA Loan
The good news is that once your waiting period is over, whether it is 2 years or not, it is fairly easy to qualify for the VA loan. The VA focuses on housing history as well as disposable income in order to qualify you for the loan. What this means is:
- Your housing history is clean, meaning you made all of your housing payments on time, whether before or after the short sale. This pertains to mortgage payments and rent, whatever case fits your situation. The lender will verify your mortgage payments via your credit report or by contacting the lender himself. If you pay rent, the landlord will need to complete a Verification of Rent form or you can provide 12 months’ worth of canceled checks to prove your timely payments.
- Disposable income is the money that you have left over after you pay all of your debts each month. It is the money the VA likes to see in certain quantities to ensure that you do not have to sacrifice too much in order to pay your mortgage. The more disposable income you have, the less likely you are to default on your mortgage in the future.
Basically, what it comes down to is the lender that you choose for your VA loan. What one lender might say “no” to, another might be willing to accept, it really depends on the circumstances of your loan. One person with a short sale might have other factors that make his loan application look too risky, while the next person could have a short sale, but other compensating factors, such as timely mortgage payments and/or good credit. The key is to shop around with different lenders as every lender has different guidelines. The one thing that no lender can get around, however, is if you defaulted on any type of government loan, including FHA and USDA loans. If this is the case, you may have to wait up to 3 years to get a VA loan, so consider your options carefully before you start applying for loans.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.