VA loans can be used to purchase short sale properties as long as VA guidelines are met. Short sales are the result of a delinquent loan, and the borrower and mortgage servicer have agreed to sell the home at a discount to avoid foreclosure proceedings. Using your VA home loan entitlement for the purchase of short sale real estate can have its advantages and disadvantages.
Pros to Using a VA Loan for Short Sale Purchase:
- Most short sale homes are offered for pennies on the dollar
- Buyer can buy the discounted home with little or no money down
Cons to Using a VA Loan for Short Sale Purchase:
- Offers can take a long time to process
- Properties are sold “AS IS” and often need repair before closing
After making an offer on a short sale, the potential buyer may often wait 60 days or longer before the seller replies with an acceptance or counter offer. During this time, interest rates can go up or down. VA borrowers planning to purchase short sale real estate should prepare for the wait.
The VA will not guarantee a property unless it is in safe livable condition and its sale price justifies the insured value. Sometimes a short sale home will need repairs before it passes the VA appraisal/inspection. Because most sellers of short sale real estate offer the home “AS IS”, the buyer could end up paying for repairs to the home before he or she actually owns the property. This can incur some risk should the sale fall through.
Buying a short sale home with a VA loan can save the buyer money if he or she is willing to work a little harder and wait a little longer. The advantages of VA loans include:
- As little as zero cash down
- No monthly mortgage insurance premiums
- No penalty for early or pre-payment
- Competitive interest rates
- Up to 6% of closing costs and concessions may be paid by seller
- No additional credit underwriting required by VA for a Streamline refinance
Ready to Get Started?
If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt to income ratios, and any other concerns you have about the process with the lenders.
