Buying a home using VA financing in California after a foreclosure or bankruptcy is possible sooner than many Veterans realize. But it does take some planning in order to make sure the VA loan is approved. Understanding the wait periods that VA requires after a bankruptcy or foreclosure are critical, as is understanding what it takes to reestablish credit and make sure credit your report errors are fixed PRIOR to making an offer on a home.
With most types of home financing, having a bankruptcy or foreclosure is a significant road block that can prevent you from being able to get a mortgage. The good news for California Veterans is that the VA mortgage program is the most flexible and has the shortest timeline for waiting after a bankruptcy or foreclosure compared to other loan programs.
With a Chapter 7 bankruptcy, which seizes and liquidates assets to repay debts, a potential borrower has to wait 2 years before being able to qualify for a VA loan. The clock on the 2 year waiting period starts once the bankruptcy is discharged, not when bankruptcy is filed. With Chapter 13 bankruptcy, which is a debt restructuring plan that is mandated by the court, a borrower may be eligible for a loan just 12 months after their bankruptcy filing date. In this case, good credit and no late payments are critical to being able to qualify. A potential borrower will also need to get permission to take on additional monthly payments from the bankruptcy trustee. The VA program can even be used to payoff a Chapter 13.
Filing for bankruptcy can create a significant hit to a borrowers credit (FICO) score which can potentially delay qualifying for a loan and purchasing a home. Lenders are usually looking for at least a 620 FICO score for a VA mortgage, but there are some lenders who will go as low as 580. A bankruptcy could knock a potential borrower well below that mark. After the discharge of the bankruptcy and during the two year waiting period it is very important to work on repairing your credit score. Working with a credit repair professional can be well worth the money for anyone who has no prior experience with credit repair.
For those California Veterans with a foreclosure you will be happy to know that the wait period is also only 2 years. ( A Conventional loan requires a 7 year wait period which is one reason why the VA program is so awesome).The combination of both a bankruptcy and a foreclosure does not necessarily lengthen the time table before getting a VA loan. In most cases this scenario is viewed on a case by case basis so it is important to consult a VA lender to ensure you are following the proper steps toward future qualification.It also important to understand that when you include a mortgage in a bankruptcy which results in a foreclosure of the home, that means you had a foreclosure. Again, to make sure you understand the timeline before being able to qualify for VA financing, talk to a California VA Loan Expert.
Authored by Tim Storm, an California Loan Officer specializing in the VA Loan Program. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.CaliforniaVaLoanExpert.com.com. 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.