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.
If you’re wondering whether or not you can get a VA loan in California after a recent bankruptcy, you’re not alone.
With the recent economic recession just barely behind us, many veterans and military personnel are now in the position of looking for a new mortgage after having gone through a bankruptcy.
Some of the most common questions asked regarding bankruptcies and VA loans in California are:
- Can I even get a California VA loan after a bankruptcy?
- If so, how long do I have to wait?
- What can I do to increase the likelihood of getting Preapproved for a new VA loan after a bankruptcy?
The good news is that as of today, the VA underwriting guidelines are more flexible than the guidelines for conventional or FHA loans.
With that said, let’s now go ahead and take a look at the different types of bankruptcies and how they impact VA loans…
Chapter 7 bankruptcies are essentially when the borrower is freed of all liability from creditors. VA loan guidelines typically call for a 2 year waiting period after a Chapter 7 bankruptcy before you can receive VA financing again.
We say “typically” because there are extremely rare circumstances in which the 2 year waiting period will be reduced to 1 instead. You would have to be able to show that circumstances beyond your control (such as losing a job or medical problems) were the driving force behind your financial hardship.
This 2 year requirement may seem harsh, but compared to the guidelines for conventional loans that call for a 4 year waiting period, it really is quite reasonable.
Chapter 13 bankruptcies involve the establishment of a repayment plan instead of being cleared of liability.
California Veterans and military personnel can qualify with VA loan guidelines even when they are still in Chapter 13 bankruptcy. However, you will have to show that you have made a minimum of 12 payments on-time and be approved by the court trustee for the loan.
Please note that once the Chapter 13 bankruptcy is complete, veterans are instantly eligible for VA loans again, whereas conventional loan guidelines still require a 2 year waiting period.
Even after you have finished the bankruptcy process, there are still actions you can take to increase your likelihood of qualifying for a VA loan after bankruptcy.
- Reestablish your credit as soon as possible if you do not have any creditors after the bankruptcy process. Remember, approving a potential borrower with no credit can be just as difficult as approving a borrower with bad credit!
- Once you reestablish credit, be sure to always make payments on time.
- Get in the habit of checking your credit at a minimum of once a year. This will give you an idea of where you stand, especially when you begin shopping for a VA mortgage.
- Upon the discharge of your bankruptcy, send a copy of all your discharge paperwork (including all applicable schedules) to the three credit bureaus: Equifax, Experian, and TransUnion.
Talk to a California VA lender to learn more about qualifying for a VA loan after a bankruptcy.
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.