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Fortunately, the VA qualifying guidelines do allow for veterans and military personnel to qualify for a VA mortgage after a foreclosure, but with some restrictions from the VA and the purchasing lender.
For starters, veterans are not eligible for a VA mortgage for two full years after their foreclosure, but this is a full year shorter than FHA borrowers, and 5 years less than current conventional guidelines. After two years veterans are allowed to apply for a mortgage again, but will face increased scrutiny and will likely have to respond to more questions during the application process and provide more documentation showing they will be good credit risks.
TIP: One of the key’s to securing approval is to have an explinaton of the events that caused the foreclosure and what has changed in the veterans life that will prevent it from happening again. If you can show that the cause of your financial trouble and foreclosure were largely out of your control, you may be able to increase your chances for approval.
Remember, while you are eligible to apply for a VA mortgage after 2 years, there are additional requirements that must be met which may vary by lender. Simply waiting out the recovery period does not guarantee you loan approval.
TIP: Another key to approval is re-establishing positive credit, which means credit that has consistantly been paid on time since the foreclosureand eliminating late payments.
This rule does not only apply to veterans who previously had a VA mortgage. Even veterans who have had conventional or FHA mortgage foreclosures are subject to the same restrictions.
For veterans who do have a recent foreclosure that involved a VA mortgage, there are additional restrictions.
First, to restore full entitlement after a VA mortgage foreclosure, the borrower has to completely pay back the VA the loss of the previously guaranteed amount. This process should be started as soon as possible, and proper documentation of this repayment can be used as a restablished credit trade line. You should consult with your loan officer from the start of this process.
It’s worth noting that it is possible to use partial-entitlement to get a VA mortgage, but without full entitlement a down payment will probably be required.
Some examples of extenuating circumstances include:
- Unforeseen medical bills.
- Job loss.
- Certain lawsuits.
Examples of circumstances which probably won’t be considered to be extenuating are:
- Bankruptcy because of an entrepreneurial business venture.
- Getting divorced.
- Certain lawsuits.
Regardless of the scenario, there is no guarantee of approval or denial as decisions are made on a case-by-case basis, so its important to seek out a lender who will credit underwrite your loan before you shop for a house.
Lastly, even though the VA does not disqualify veterans from VA mortgages after a foreclosure, it can definitely make the application process take longer than it normally would. For help, crafting an explination letter, re-establishing your credit, or getting a credit approval before you shop. Please contact Joe or I at info@UofHome.org.
Tim Swierczek, MMS, CRMS