What are the VA short sale guidelines?

By James Sanson, REALTOR® · Updated October 2026

IMPORTANT NOTICE

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The VA short sale rules are short enough to read in full. The regulation is one paragraph, 38 CFR 36.4322(e), and the servicer handbook adds a page. Everything a servicer can approve on its own comes from those two places; anything outside them needs VA pre-approval. Here is what they actually say, with the plain-English meaning next to each requirement.

What does the VA regulation require for a short sale?

Under 38 CFR 36.4322(e)(1), the loan holder may approve a short sale without asking VA first if three things are true:

The holder has determined the loan is "insoluble." In plain terms: the servicer has concluded the default cannot be cured and the loan cannot be brought current. Under the servicer handbook, when a loan is 60 or more days delinquent and you have asked for a short sale, the servicer does not have to evaluate your income, employment, expenses, or other debts to reach that conclusion (M26-4, section 5.08 a.1).
The credit to the debt equals or exceeds the property's "net value." The credit is the net sale proceeds plus any part of the debt the holder waives. Net value is defined in 36.4322(c): the property's fair market value from a VA liquidation appraisal, minus VA's estimated cost to acquire and sell the property, using a cost percentage VA publishes in the Federal Register. The servicer handbook states the same test as "the net proceeds equal or exceed the net value" (5.08 a.2). This is the number that decides whether an offer is acceptable, and it is why the sale price on its own tells you nothing until the net value is known.
The current owner receives no proceeds from the sale. (36.4322(e)(1)(iii); M26-4 5.08 a.3.) Relocation assistance under section 5.10 is separate from sale proceeds and is addressed below.

If those three conditions cannot all be met, the holder is not stuck. 36.4322(e)(2) lets the holder ask VA for advance approval anyway when it believes the short sale is in the best interests of the veteran and VA. The handbook repeats this as a pre-approval request through VALERI (5.08 c).

What does the servicer handbook add?

When a short sale comes up. The VA Loss Mitigation Waterfall in section 5.01 starts by asking whether you want to keep the home. If you do not, Step 1 directs the servicer to discuss a private sale, a short sale, and a deed-in-lieu. A short sale is an "alternative to foreclosure," not a home-retention option, so it does not require a trial payment plan or a three-month delinquency (section 5.01 e, reference table).
No second appraisal. If a liquidation appraisal was already ordered because the property was scheduled for foreclosure, the exterior-only liquidation appraisal is sufficient for a later short sale offer (5.08 b).
Partial claims change the process. If you have an outstanding VA Partial Claim, a COVID-19 Veterans Assistance Partial Claim Payment, or a COVID-19 Refund Modification, the servicer must request VA pre-approval before completing the short sale (5.08 d).
Relocation assistance. Section 5.10 authorizes the servicer to advance $1,500 in relocation assistance to a borrower-occupant who completes a short sale or a deed-in-lieu, and VA reimburses the servicer for it. You must sign a written agreement about the conditions for receiving it.
The name changed. Older VA documents, and many websites, say "compromise sale." VA replaced that term with "short sale" throughout Chapter 5 effective May 8, 2024. They describe the same transaction.

What do the guidelines not say?

They do not set a minimum sale price as a percentage of value, a required hardship category, or a waiting period before you can list. The only price test is the net value test above. Because net value is computed from a VA liquidation appraisal and a published cost percentage, the way to know whether an offer will pass is to ask the servicer for the net value figure once the appraisal is in, not to guess from the list price.

What should you do with this?

Three things, in order. Ask the servicer, in writing, whether it has determined the loan insoluble and whether a liquidation appraisal has been ordered. Ask for the net value once the appraisal is complete. Then price the home so a realistic offer clears that number, because an offer below net value cannot be approved by the servicer alone. What a short sale does to what you owe is on do you owe the difference after a VA short sale, and what it does to your future VA eligibility is on getting a VA loan after a short sale. The overview of the whole process stays on how a short sale works on a VA loan.

Frequently asked questions

What are the three VA short sale conditions?

Under 38 CFR 36.4322(e)(1): the holder has determined the loan is insoluble; the net proceeds plus any waived debt equal or exceed the property's net value; and the current owner receives no sale proceeds.

What is net value in a VA short sale?

Under 38 CFR 36.4322(c), the fair market value from a VA liquidation appraisal minus VA's estimated acquisition and disposition costs, calculated with a percentage VA publishes in the Federal Register.

Does the servicer have to review my finances for a VA short sale?

Not when the loan is 60 or more days delinquent and you have requested the short sale. M26-4 section 5.08 says the servicer does not need to establish employment, income, expenses, or debts in that case.

Can a VA short sale be approved if the offer is below net value?

Not by the servicer alone. Under 36.4322(e)(2) the holder may ask VA for advance approval if it believes the sale is in the best interests of the veteran and VA.

Is a VA compromise sale different from a VA short sale?

No. VA replaced the term compromise sale with short sale throughout M26-4 Chapter 5 effective May 8, 2024. Both refer to the same transaction.

Is there VA relocation assistance for a short sale?

Yes. M26-4 section 5.10 authorizes servicers to advance $1,500 to a borrower-occupant who completes a short sale or deed-in-lieu, subject to a written agreement, and VA reimburses the servicer.

Sources, read on September 26, 2026: 38 CFR 36.4322(e); VA Servicer Handbook M26-4, Chapter 5, sections 5.01, 5.08 and 5.10 (Change 13, June 1, 2026); 38 U.S.C. 3703(e); VA Circular 26-18-25 (October 30, 2018); VA Lender's Handbook, Pamphlet 26-7, Chapter 2 section 2.06 and Chapter 4 Topic 7. heroSOLD is not a lender, not a law firm, and not affiliated with the Department of Veterans Affairs. Rules change; confirm the current text with your servicer, a VA loan technician at 877-827-3702, or an attorney.