Yes, You Can Get a VA Home Loan After a Bankruptcy, Foreclosure or Short Sale
Yes, you can get a VA home loan after a bankruptcy, foreclosure, short sale, or deed in lieu. You only need to wait two years from the date of the “event” (foreclosure, short sale, etc). The two year rule also works for a discharged bankruptcy. It is important to note that this two year wait period is the shortest for any type of Conventional/Government home financing. The FHA program requires a three year wait period after a foreclosure. Both Fannie Mae and Freddie Mac require a 7 year wait period after a foreclosure. With both agencies the wait time could be shorter if there were “extenuating circumstances”, but proving extenuating circumstances is not an easy task.
Flexible Credit Qualifying for VA Financing
Not only is a VA home loan more lenient when it comes to prior credit issues, but also is just a better program all the way around, at least for those Veterans with entitlement available for the program. VA allows Veterans to purchase a home with no down payment.
FHA, a government loan program available to anyone looking to buy a home, requires only 3.5% down payment. However, the monthly mortgage insurance on an FHA loan is also very high. VA, even with no down payment, has no monthly mortgage insurance. On a $400,000 loan amount, the difference in payment just because of the FHA mortgage insurance would be approximately $450 per month. (The FHA mortgage insurance factor for loans at 96.5% loan to value is 1.35%. 1.35% x $400,000 divided by 12 = $450 per month).
Re-Established Credit is Critical
If a Veteran really wants to enter the real estate market after a major credit derogatory, it is critical that they work on repairing and rebuilding their credit. They should make sure the “event” is reporting correctly on their credit report. Many times after a foreclosure, the foreclosed lender will continue to show a balance on the mortgage. This is not correct. After foreclosure the balance should be $0. A short sale will sometimes appear on the credit as a foreclosure. It should read SETTLED_LESS THAN FULL BALANCE.
Get a copy of your credit report immediately. If you see errors on your credit, then contact a credit specialist for the best way to correct it right away. If you would like a FREE credit report and consultation, contact me. Also, open new accounts in order to rebuild your credit. This should all be done before the two year wait period is up. A Veteran who has planned ahead and re-established their credit will be in position to buy a home at the end of month 24 after their foreclosure, short sale, or bankruptcy.
Lender Guideline Overlays for VA Home Loans
A Guideline Overlay occurs when a lender does not directly follow the standard VA guidelines. A common overlay is for a VA lender to require a longer wait period after a foreclosure or short sale when the loan amount is greater than $417,000. In many parts of the country this wouldn’t matter much. However, in some high cost counties in other states like Orange County and Los Angeles county, this can be a problem. The ZERO DOWN loan limit in Clark County, NV (2013) is $417,000. This means a Nevada Veteran buying a home in Las Vegas with a VA home loan could borrow up to $417,000 and would not need a down payment. But many lenders wouldn’t approve this if the Veteran had a foreclosure two years prior. This is why it is important that the Veteran get Pre-Approved by a local Nevada VA direct lender before making an offer on a home. The Veteran needs to find a lender who will follow VA guidelines without overlays. Also the lender will be able to provide custom VA home loan scenarios with details on the purchase price, loan amount, payment, and closing costs associated with a VA loan.
Contact me for more details or to get pre-approved.
Mortgage Advisor, CMP, CMPS