Getting a VA home loan after a short sale is fairly easy since VA does not require a wait period after the closing of the short sale. VA home loan underwriting guidelines tend to be more flexible than any other type of financing when it comes to prior derogatory credit. Of course, it is important to have re-established credit.
Re-established Credit after a Short Sale
After a major “event” like a short sale, foreclosure, or bankruptcy, it is important to make sure your credit is perfect. Having a late payment on a credit account, or a collection can make it difficult to get VA home loan approval. The underwriter will want to see that the borrower is making payments on time. Even if you think that your health insurance should have paid a medical bill (most medical collections are in the $50 to $250 range), don’t let the bill go to collections. Pay it and work on resolving the issue later. Once it becomes a collection the true cost from the overall damage to your credit and FICO score will be more than the cost of just paying the bill.
VA Home Loan Wait Periods for Major Derogatory Events
The general rule of thumb for a VA home loan after a major credit derogatory event is Two years. Two years from the time of the foreclosure or Deed in Lieu, or two from the discharge of a bankruptcy. Something to be aware of is that not all lenders follow VA guidelines to the letter. Depending on several factors, like FICO score or loan amount, some lenders will have tighter guidelines. In the mortgage industry, these tighter guidelines are known as lender “overlays”. A typical lender overlay with VA home loan lenders is in regards to foreclosures and loan amounts greater than $453,100. $453,100 is the 100% loan limit for most of the country. In most of the country, a loan amount over $453,100 is considered a “Jumbo VA home loan”. It is a little different in California, where there several “high-cost counties”. VA will allow higher zero down loan limits in high-cost counties. For example, in Orange and Los Angeles County, the zero down loan limit is $679,650 (in 2018). Still, many lenders have “overlays” where they require between 4 and 7 years to go by before a Veteran can get VA financing if the loan is over $453,100. Because of these lender overlays (especially this one, because it is prevalent), it important for a California Veteran to know the standard VA guidelines, and know that if one lender says “no”, to keep looking, Because there are VA home loan lenders in California who will approve your high balance or Jumbo VA home loan two years after a short sale or foreclosure.
The most important first step in the home buying process is Pre-Approval. Getting Pre-Approved before starting the home search will save time, money, and aggravation. Also, sellers will not even accept an offer if the buyer is not Pre-Approved or at least Pre-Qualified for a VA home loan. During the pre-approval process, the California Veteran will be educated on the loan process. Income and asset documentation is proved, and custom VA loan scenarios are provided which will provide details on the purchase price the Veteran will qualify for, along with the loan amount, payment breakdown, closing costs, and prepaid expenses.
Veterans will sometimes assume that there are no closing costs associated with a VA loan, or that the seller will pay all closing costs. Well, there are definitely closing costs associated with a VA loan (just like any loan), and the seller is not required to pay the closing costs. In the current real estate market, where many areas have recently seen a resurgence, an offer requesting the seller pay all the closing costs will have a tough time getting accepted if there are multiple offers not requesting closing costs. But there are still ways for a Veteran to purchase a home with no down payment and not come up with anything out of pocket to close. The Pre-Approval will help the Veteran understand all of their options. The first step is to contact a California VA home loan lender.
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.