Fortunately, the VA qualifying guidelines do allow for veterans and military personnel to qualify for a VA loan after a foreclosure, but with some restrictions. VA guidelines after a foreclosure are actually more flexible than other types of financing, including FHA and Fannie Mae/Freddie Mac.
For starters, veterans are not eligible for a VA loan for 2 full years after their foreclosure. After this time veterans are allowed to apply for a loan again, but will face increased scrutiny and will likely have to respond to more questions during the application process.
Remember, while you are eligible to apply for a VA loan after 2 years, there are additional requirements that must be met which may vary by lender. Simply waiting out the recovery period does not guarantee your loan approval. Your credit needs to be re-established and your FICO score must still meet the minimum required by the lender, in most cases 620. Also, most California VA lenders also need an Automated approval.
Also, keep in mind that this rule does not only apply to veterans who previously had a VA loan. Even veterans who have had Conventional mortgage foreclosures are subject to the same regulations.
For California veterans who do have a recent foreclosure that involved a VA loan, there are additional restrictions.
First, to restore full entitlement after a VA loan foreclosure, the borrower has to completely pay back the VA the loss of the previously guaranteed amount.
It is possible to use partial-entitlement to get a VA loan, but without full entitlement, a down payment will probably be required. Borrowers with past foreclosures will also be asked to provide details regarding the circumstances. If you can show that the cause of your financial trouble and foreclosure were largely out of your control, you may be able to increase your chances for approval.
Some examples of extenuating circumstances include:
- Unforeseen medical bills.
- Job loss.
- Certain lawsuits.
Examples of circumstances which probably won’t be considered to be extenuating are:
- Bankruptcy because of an entrepreneurial business venture.
- Getting divorced.
- Certain lawsuits.
Regardless of the scenario, there is no guarantee of approval or denial as decisions are made on a case-by-case basis.
Lastly, even though the VA does not disqualify veterans from VA loans after a foreclosure, it can definitely make the application process take longer than it normally would. After a foreclosure, it is more important than ever to talk to a California VA lender who can help with VA Loan PreApproval. The lender should also prepare custom loan scenarios showing a detail of the purchase price, payment, and closing costs.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.