Short sales can be a good option for buyers looking to purchase a home at a lower price. Sellers of these homes are highly motivated and are often willing to cut a deal to sell the property quickly. While it is possible to buy a short-sale home with a VA loan, certain requirements must be met. Below, we’ve discussed the matter in detail.
What Is a Short Sale?
A short sale is a home that is sold at a lower price than the current owner’s mortgage balance. Usually, a short sale occurs when a homeowner is one or more payments behind on their mortgage.
To avoid foreclosure, the owner needs to sell the property quickly. While a short sale can impact a homeowner’s credit, the financial consequences are not as severe as a foreclosure.
A short sale can only occur if the current owner’s lender approves of the transaction. For this reason, there is usually extra paperwork involved. It may also take longer to process the transaction.
Buying a Short Sale Home with a VA Loan
If you’re planning on buying a short-sale home with your VA loan, you’ll want to inform your lender. That way, your lender can fill you in on the details of what to expect. Short-sale purchases are possible with VA loans. However, the process is slightly more complicated than a normal transaction. This is something that you should be aware of and comfortable dealing with. Additionally, like a normal transaction, you’ll need to meet all the typical VA loan requirements.
VA Loan Requirements for Short Sale Purchases
If you’re okay with putting in a little extra effort and waiting longer, buying a short-sale home with your VA benefits could be a great option that helps you save money. That being said, you’ll need to meet certain requirements including:
- Be eligible for a VA loan.
- Able to obtain a COE (certificate of eligibility)
- Meet your lender’s credit score and income requirements.
- Have a reasonable debt-to-income ratio (usually lower than 41%)
- Be able to pay for closing costs and other fees.
Additionally, the property you’re buying must meet the VA’s Minimum Property Requirements and be in a stable, livable condition. This is where things tend to get complicated since short sales are often sold “as is” and in need of repairs.
Buying a Short Sale Home that Needs Repairs
So, what if the short-sale property you want to buy needs repairs? You may still be able to go through with the transaction. However, you will need to pay for the cost of repairs to get the property up to VA standards. This, of course, does involve some risk. Therefore, you should weigh the pros and cons carefully before making your decision.
Have Questions? We’re Here to Help!
Call our office today to get more information on VA loan requirements for short sales or speak to an expert about your home financing needs.