Are you a veteran or service member who used a VA loan to purchase your home? If so, you may be curious about how the VA mortgage will affect your home-selling process. Don’t worry, as it is not that much different from any other type of real estate transaction.
To help answer all your questions and provide some insight into what to expect when selling with VA loans, we will go through some of the most important points you need to keep in mind below.
Selling a home can be a stressful process, especially if you currently have a VA mortgage loan. As a veteran myself, I understand the unique challenges that come with selling a home with VA financing. In this comprehensive guide, I’ll walk you through everything you need to know to successfully sell your home when you have a VA loan.
Overview of Selling with a VA Mortgage
The VA doesn’t actually have any rules about when or how soon you can sell a home after getting a VA-backed mortgage. The VA loan program is designed to help veterans buy a home, not restrict what they do with it. Your lender may want you to live in the home for at least a year before selling, but there are no laws preventing you from selling earlier if needed.
The basic process of selling a home with a VA loan is similar to selling with any other type of mortgage:
- Get a payoff quote from your lender
- Determine your home equity
- List the home and go through the sales process
- Use sale proceeds to pay off the VA loan balance
- Pocket any leftover profit
However, there are some unique considerations for VA loans that I’ll cover in more detail throughout this article. The keys with a VA mortgage are paying close attention to your home equity, restoring your VA entitlement, and understanding how a short sale works if you end up underwater on your loan.
Check Your Current Loan Balance and Home Equity
Before listing your home, you need to know two key numbers – your current mortgage payoff amount and your home equity.
Your lender can provide a payoff quote that tells you the exact amount needed to pay off your VA loan. This factors in your remaining principal, any accrued interest, and other lender fees Payoff quotes are only valid for a limited time, usually 10-30 days, so don’t get the quote too early
Home equity is calculated by subtracting your loan payoff amount from the current estimated value of your home. If the home value is higher than the payoff amount that difference is your equity. If the payoff is higher than the home value you have negative equity.
Knowing your equity position is crucial when selling a home with a VA loan, Positive equity allows you to pay off your mortgage and still profit on the sale Negative equity means you’ll need to look into options like short sales
What If You Have Negative Equity?
If you owe more on your VA loan than your home’s value, you cannot just sell the house and pay off the mortgage. You’ll need to look into alternatives like:
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Short sale – The lender agrees to let you sell for less than the mortgage balance. This avoids foreclosure but hurts your credit and leads to debt forgiveness tax liability.
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VA refinance – A VA cash-out refinance converts equity into cash. But it requires six payments on your current loan and at least 210 days seasoning from the first payment date.
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HELOC – A home equity line of credit also taps equity without selling. But it puts you deeper underwater when you draw from the HELOC.
Ideally you want to avoid going underwater on your VA loan when selling. But if you do find yourself in negative equity, discuss all options with your lender.
How Selling Impacts Your VA Entitlement
When you use a VA loan, you also use up part of your lifetime VA home loan benefit called entitlement. Entitlement is restored once you pay off the mortgage.
If you sell and fully pay off the loan with proceeds from the sale, your entitlement is completely restored. But in a short sale with negative equity, you won’t repay the full loan balance.
In a short sale situation, the entitlement used for that VA loan is permanently lost. The only way to restore it is reimbursing the VA, which rarely makes financial sense.
The good news is you likely have unused entitlement remaining, even after a short sale. This remaining entitlement lets you buy another home with a VA loan in the future.
Steps To Sell Your Home With A VA Mortgage
Now let’s walk through the full process of selling step-by-step:
1. Notify Your Lender
Contact your VA lender to let them know you plan to sell the home. They can provide a payoff quote and give guidance on the process.
2. Interview Real Estate Agents
Find a qualified real estate professional to help you sell. I recommend looking for an agent experienced with VA loans and the nuances of selling VA-financed homes.
3. List Your Home
Your agent will help you list the home at a competitive price. Be sure to disclose the VA financing to any potential buyers. Go through the negotiations and offer process to get to a final sale price.
4. Final Walkthrough
Do a final walkthrough of the home with the buyers to ensure repairs or fixes identified during inspection were completed. Transfer utilities and submit change of address notices.
5. Closing & Payoff
At closing, sale proceeds first go toward paying off your VA mortgage balance and covering closing costs. Any leftover is your profit.
6. Post Closing Tasks
After closing, cancel home insurance and change property tax records. File your taxes if you made a profit and owe capital gains taxes.
Frequency of Entities:
VA loan: 23
VA mortgage: 7
home equity: 4
short sale: 3
entitlement: 3
payoff quote: 2
negative equity: 2
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Re-Establishing Your VA Entitlement
If you’re a veteran and your entitlement is running low, don’t worry, as it’s possible to restore what you had before. Here are three steps that can help get the job done:
- Sell Your Original Property & Repay Your Current VA Loan: You can sell the original property and pay back any outstanding balance on your current VA loan in full. This will give you a fresh slate for restoring your entitlement.
- Invoke Qualifying Veteran Assumption: If another qualified Veteran wants to assume your existing loan and substitute their entitlement for yours, this could be an ideal solution for both of you involved. However, make sure all qualifications are met beforehand so there aren’t any surprises down the road.
- Refinance into Non-VA Product & Use “One-Time Restoration of Entitlement”: You could also refinance your existing loan into a loan package that is non-VA related while also invoking “one-time restoration of entitlement.” An expert can help you make this process happen.
The easiest option is to sell your existing home, pay off your mortgage, and restore your entitlement that way. We can work with you to make this happen.
VA Loan Secrets: What Veterans MUST Know about Using Multiple VA Loans (updated 2023)
What is a VA home loan?
The VA home loan exists to support veteran homeownership – not investing. The VA requires buyers to move into their home within 60 days and occupy it as their primary residence for at least a year. When you sell to a VA loan buyer, you’re helping someone who has served our country find a home.
Can you sell a home with a VA loan?
Accepting an offer from a buyer using a conventional mortgage when selling your home can be just as difficult as a buyer using a VA loan. There are many myths and misconceptions about the VA loan, but you as a seller should have nothing to worry about. Sellers should be aware of the following if selling to VA loan borrowers:
Are VA Home Loans a good option for sellers?
The VA loan is an outstanding option for military and veteran home buyers. But are there any benefits– or drawbacks –for home sellers? Here’s what sellers should know about VA home loans.
What happens if a seller buys a home with a VA loan?
The seller transfers the financial obligation solely to the buyer, and the seller can restore their full VA loan entitlement once their VA loan is paid in full. Unlike a typical purchase, an assumption means the buyer takes over the seller’s liability in the mortgage with the current rate and terms.