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  • VA loan after foreclosure

    June 18, 2020

  • VA loan after VA foreclosure

    Life can throw us some curves. Sometimes that means even the best of us may have ended up having financial issues that lead to a foreclosure.

    But having an old foreclosure does not prevent you from getting a new loan in the future, even if you've had a foreclosure on a previous VA loan.

    There are some simply rules you need to understand for a new loan after a foreclosure:

    Waiting periods:

    Once you've had a major negative credit event like foreclosure, the lending guidelines require you wait a minimum period after the even before you can get a new loan. The minimum period depends on what type of loan the new loan will be.

    • VA loan: 2-years after the foreclosure, deed-in-lieu of foreclosure or short-sale.
    • Standard Conventional loan: 7-years after a foreclosure. 4-years after a short-sale or deed-in-lieu of foreclosure
    • FHA loan: 3-years after a foreclosure, deed-in-lieu of foreclosure, or short-sale.  Only 2-years after a short-sale if you never missed any payments.

    You may read elsewhere of shorter waiting periods for extenuating circumstances. These are extremely hard to get, and requiring meeting very strict 'beyond your control' guidelines. The VA specifically states unemployment, prolonged strikes, medical bills not covered by insurance, don't qualify. It also says divorce is not viewed as beyond the control of the borrower/spouse.

    Credit / Normal requirements

    Once your mandatory waiting period is over, you still must need all normal and regular loan guidelines for debt-to-income ratios, credit scores, etc. They will specifically like to see a pattern of re-established credit, and acceptable credit scores, which may often be your biggest hurdle.

  • VA Certificate of Eligibility (COE)

    Military personal who have met the requirements for a VA home loan get what is known as a VA loan Entitlement. Your basic entitlement is $36,000. The simple way to explain this is that is the amount the VA will guarantee to your lender of you default on the loan.

    As home values went up, Congress, instead of just increasing the entitlement number, came up with this goofy 'secondary' entitlement system, which is $68,250.

    Lost yet? No worries, let me explain.

    When it comes to a previous VA foreclosure, any amount the VA had to pay out to the old lender gets charged to your available entitlement amount available. You can not access that used up amount again UNLESS you pay the VA back for your loss.

    Depending on how much entitlement was charged for your previous lost will determine how much hew house you can buy with a new VA loan.

    An Example of using your remaining entitlement: 

    Let us say you bought a home previously that was lost to foreclosure. The VA paid out a claim to the lender for $36,000, the maximum primary entitlement. That amount is no longer available to you, but the secondary entitlement is still there in full for $68,250. 

    You can buy a home zero down with up to 4 times your remaining $68,250, or $273,000.

    But wait, there is more (well, it's the government you know)

    Because there is the 'primary' entitlement and 'secondary' entitlement, in this example, you have no primary entitlement left, so you could NOT you could NOT buy a home less than $144,000 $36,000 x 4) - but you COULD buy a home for up to 4 times your secondary entitlement, so $273,000 ($68,250 x 4).

    Weird huh?

    The bottom line is that if you have an old foreclosure, even a VA foreclosure, please reach out to our Licensed Loan Experts at (651) 552-3681, or just apply online for your VA loan to see what programs are available to you today.