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By November 3, 2010 1 Comments Read More →

VA Compromise Loans Help Vets Avoid Mortgage Foreclosure

American service members underwater on their VA mortgage are facing some grim realities when trying to sell their homes.

Values have plummeted in the current market, which can create a devastating
gap between what a veteran can sell their home for and what they still owe on their loan. But the VA, which has an array of programs and options geared toward helping veterans stave off foreclosure, can sometimes step in to help bridge that divide.

Under the VA’s Compromise Sale Program, the agency can pay a “compromise claim– for the difference between the sale price and the borrower’s loan balance. That allows the veteran to complete a private sale to a borrower who either assumes the loan or who has secured separate financing.

These aren’t exactly everyday transactions. But the Compromise Sale Program is another of the VA’s powerful tools that can help keep service members out of credit and fiscal calamity.

Given the unique nature of this program, there are a host of requirements and criteria for all stakeholders. Several factors must be met in terms of basic eligibility, including:

  • The sale price must reflect fair market value

 

  • Reasonable closing costs

 

 

  • The sale must represent a better financial outcome for the government than foreclosure

 

 

  • The seller must be able to document financial hardship

 


 

  • There can be no second liens

 

 

  • Sellers must have a sales contract in place before applying

 

 

A host of VA-approved lenders are authorized to conduct compromise sales. But the agency itself can do them in-house if necessary.

A current VA appraisal is required before a Compromise Sale can proceed.

The mortgage lender must also agree to have the amount of its VA guaranty reduced by that gap between sale price and loan balance — in other words, the value of the compromise.

One issue veterans need to consider is losing, at least temporarily, some of their future buying power. The part of their VA entitlement tied up in the original mortgage guaranty will remain in limbo until the VA gets fully reimbursed.

To learn more about this program, VA loan holders can contact the agency at 1-800-933-5499. The VA also has a VA compromise guide available for download.
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About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender. Follow him on Google+.

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Posted in: Mortgages

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