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VA Loans

Most VA Home Loans are handled entirely by private lenders and VA rarely gets involved in the loan approval process.  But what VA does do is "stand behind" the loan by guaranteeing a portion of it.  If something goes wrong and you can't make the payments anymore, the lending institution can go to VA to cover any losses they might incur.  The VA loan guaranty is the "insurance" that VA provides the lenders that allows them to provide you with more favorable loan terms, including no down payment, no private mortgage insurance premiums, limited closing costs and no prepayment penalties.

To be eligible for a VA-guaranteed home loan, you must have suitable credit, sufficient income and a valid Certificate of Eligibility (COE).  The COE verifies to the lender that you qualify for a VA-backed loan for a home that must be for your own personal occupancy.  To obtain a COE, you must have been discharged under conditions other than dishonorable and meet the service requirements.

How To Tell If You Have A VA Loan

VA insured loans are low down payment, low interest loans available only to veterans and their families.  You would have been told at the time you received the loan that it was insured by the Veterans Administration.  You can also check your original loan documents.  Both the promissory note and mortgage will have a disclaimer at the top in bold letters stating that it is a Veterans Administration loan. 

I Missed A Mortgage Payment.  What Are My Options With A VA Loan?

Most of your options with a VA loan will be the same as those available with conventional loans.  However, the VA requires that your mortgage lender send you very specific letters to stay in touch and make active attempts to reach you.  Whether or not you have received these letters, reach out to the bank yourself to discuss options.  With a VA insured loan, it is especially important that you save letters you receive from the bank and keep good records of your contact with the bank as it has an obligation to communicate with you.  You should also be aware that a default on a VA insured loan could affect your eligibility for other VA benefits.  Contact the VA for more information (1-800-827-1000).

It is very important to open and read your mail.  If your lender offers to meet with you, you should accept that opportunity.  In fact, if you haven’t heard from your lender, request a face-to-face meeting yourself.  The sooner you meet with your lender to resolve the problem, the easier it will be to fix.  There is an embarrassment factor for the homeowner who is behind on the mortgage, but don't let that prevent you from meeting with the bank.  Bank personnel deal with this problem all the time and there are special programs specifically for homeowners in this situation.  The bank looses money if it has to foreclose, so fixing the problem is in everyone's best interest.


The available programs and options to help a homeowner avoid foreclosure are handled by the bank's loss mitigation department.  It is called "loss mitigation" because their job is to minimize the loss to the bank by preventing the house from going into foreclosure.  Below are some of the VA specific programs to help homeowners who have delinquent mortgages.

 
  • Compromise Sales: If you do not believe you will be able to reinstate your loan and cure the default, a private sale of the property will enable you to meet your obligations and realize any equity you may have accumulated.  If your property cannot be sold for an amount which is equal to or greater than the amount owed, VA may pay a "compromise claim" for the difference in order to help you go through with the sale. 

    Compromise sales are approved if the sales contract meets several criteria and results in a savings to the agency, over the costs of foreclosure.  An additional advantage is that the property is not acquired by the VA and the owner avoids a foreclosure and resultant damage to their credit rating.  If a compromise contract is accepted, you will be released from all further liability.  Please contact your mortgage company to discuss this alternative to foreclosure.

    In order to be considered for the compromise sale program, you must submit a signed contract equal to fair market value.  You will need to contact your mortgage company to speak to a representative in loss mitigation concerning the process and requirements to complete the compromise sale.  All closing costs should be reasonable and customary.  You should submit this contract along with the appropriate forms to your mortgage company. 

    Some servicers are authorized by VA to approve a sale with a compromise claim.  If the servicer is not authorized by VA to approve a compromise claim, they must contact VA to discuss the situation and get prior approval for a sale with a compromise claim payment.

  • Refunding VA has the discretionary authority to buy a loan from the holder and take over the servicing.  This is called "refunding".  VA considers this alternative for every loan before foreclosure is completed.  If you have the ability to make mortgage payments, or will have the ability in the near future, but your loan holder has decided it cannot extend further forbearance, a repayment plan, or a modification, you may qualify for refunding.  If your loan is in default and you are not able to repay the loan according to the lender's terms, you should contact your VA representative.

Remember as with any mortgage loan, your first step should be to contact your lender and a local HUD certified housing counselor.  But if your lender is not working with you properly to resolve the problem with your VA loan, you should report the matter to your VA Regional Loan Center.

          Department of Veterans Affairs
          VA Regional Loan Center
          1240 East Ninth Street
          Cleveland, OH 44199
         

          (800) 729-5772

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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