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Getting a VA loan for a short sale

Steve McLinden

MortgageVA Loans

Steve McLinden

Dear 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.

Senior wearing 'Vietnam Veteran' baseball cap | Joe Raedle/Getty Images

Joe Raedle/Getty Images

Dear Nate,
Yes, short sales are eligible for VA-backed financing, as are foreclosures 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.

RATE SEARCH: Comparison shop for a VA loan today.

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 3 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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