What’s a VA Compromise Sale?

You’ve likely heard of a short sale, but what about a VA compromise sale? It’s essentially the same thing as a short sale. The lender agrees to settle for an amount that is less than the full amount of the mortgage when you sell the home.

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This has happened more in the recent past than ever before, thanks to the tanking real estate market. Homeowners have a serious reason to sell their home, such as a job relocation or permanent change of station for veterans, and they find out that their home is worth less than they thought. Suddenly they realize that they are upside down on their loan.

This is when the compromise sale becomes valuable. But don’t just assume you qualify for a compromise sale. You have to talk it over with the lender.

How the Compromise Sale Works

If you have to list your home for less than you owe on the mortgage, you’ll have to enlist the help of the VA. If you receive an offer for your home that is less than the outstanding mortgage balance, you can request a compromise sale from the VA. Upon receipt of the request, the VA evaluates the situation and discusses it with your lender. If the VA does approve the compromise sale, the VA will pay the lender the difference between the sales price and the outstanding loan balance.

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In order to qualify for the comprise sale, the following must be true:

  • The compromise sale must cost the government less than foreclosure proceedings would cost
  • The home must be sold at the fair market value
  • The closing costs must be average for the area
  • The seller must demonstrate some type of financial hardship
  • You must not have a second lien on the property
  • There must be a signed and dated sales contract in place

How the Lender Gets Paid

The lender will obviously get paid from the proceeds of the sale. Because in a compromise sale, this isn’t enough to cover the full loan amount, the VA must step in. This is why the VA is involved in the process from start to finish. The VA will pay the lender the difference between the sales price and the outstanding loan amount. This is why the VA makes sure the compromise sale will cost the VA less than an actual foreclosure.

The VA compromise sale was started to help decrease the number of foreclosures on the market while helping veterans that are in a financial bind. It looks much better on a veteran’s credit report to have a compromise sale rather than a foreclosure. A foreclosure also tends to hurt the surrounding homes’ values even more than a comprise sale.

Before you assume you can take this step, contact the VA. Let them know your story. Why do you need to accept less than you owe on the home? Are you experiencing financial hardship due to a decrease in income? Are you upside down on your loan and your job relocated you? Tell the VA the whole story and they may allow you to start the compromise sale process.

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