VA loan, underwater, want out — what would you do?

Question

I’m looking for advice on the cleanest way out of my house.

• VA loan balance: ~$886k
• Mortgage payment: $5,944/month
• My take-home income: ~$5,400/month
• Rental income from people living in the house: ~$3,600/month
• Total monthly cash coming in: ~$9,000
• If I rented the entire house, I’d still be about $2,000/month negative
• If I sell now, I estimate I may be ~$50k short
• Wife is a stay-at-home mom and we have a one-year-old
• We hit 2 years in the home on May 5, 2027

We can technically survive with the current rental income, but I don’t want to keep carrying this much risk as the sole provider.

I’m considering:

• Holding until spring 2027
• Normal sale
• VA short sale
• Loan modification
• Deed-in-lieu
• Bankruptcy only if things get much worse

I’m calling the VA to ask about loss-mitigation options and how a short sale would affect future VA entitlement.

What would you do in my shoes? Has anyone here gone through a VA short sale or deed-in-lieu?

Diana Khan · Answer

@Roberto Lopez, from working with property owners in difficult real estate situations, I would not make the decision based only on whether you can keep surviving the payment for a few more months. I would first get the exact numbers for each exit. I would ask the lender what a short sale, deed-in-lieu, and loan modification would actually require, whether any remaining balance would be waived, and what documents they would want from you. I would also get a realistic seller net sheet from an experienced local agent so you know whether the $50k shortage is really $50k after commissions, closing costs, repairs, and other expenses.

I would also be careful about holding just because you reach two years in May. I have seen people stay in a stressful property because they are waiting for one future date or hoping the market will fix the problem, but the monthly risk keeps growing in the meantime. I would want the VA, your lender, a California real estate attorney, and a CPA to explain what each option means for your future VA entitlement, credit, taxes, and any remaining debt before you sign anything. Once you have those answers, you can compare the cost of leaving now against the cost and risk of waiting. You are asking the right questions before things get worse.

Jules Aton · Answer

Sorry this is happening. Unless you have reason to believe that improving the property or holding briefly because it is increasing in equity will correct the situation I would rip the band aid off and sell. Consider sunk cost fallacy and consult a reputable realtor to assist with the actual timing.