Buying A Home With A VA Mortgage After Foreclosure: A Brief Guide
A foreclosure happens when a homeowner becomes significantly past due on their mortgage payments and the bank/lender decides to take back the house in order to sell it and pay off the loan (hopefully). Going through a foreclosure usually results in a tough financial situation for years to come. Most people believe that restoring their financial health and owning another home after a foreclosure takes an extremely long time, but this is not entirely true. Particularly, veterans who default on a loan are in a better position compared to homeowners who have defaulted previously and are applying for a conventional or FHA loan. In other words, VA mortgage loan applicants may qualify to become “boomerang buyers” quicker than other borrowers.
Foreclosure is Not the End of the Road
Veterans might be able to get another VA loan post-foreclosure, after a waiting period of at least two years. Most defaulters often work on repairing and strengthening their credit during this period, to qualify for a VA home mortgage at low interest rates. The total number of boomerang buyers has gone up sharply in 2015 (about 7,00,000 homebuyers). The trend, however, may be sporadic in the future. This means the eligible veterans who have already passed the waiting period of two years post-foreclosure, shouldn't delay and make the best of the current trend.
Taking Out a VA Loan After a Foreclosure
The success of getting another VA loan under the “VA Home Loan Guaranty Program” depends on the type of loan you have defaulted on earlier. As mentioned before, veterans and active duty service members, who lost a conventional mortgage to foreclosure may have to wait for a minimum of two years before they qualify to apply for a new VA loan. The waiting period may even extend to three years for the veterans and active duty members who have defaulted on an FHA, or other government endorsed loan.
Another key factor to consider is the credit score. Foreclosure may bring down the credit score by almost 120 points. Each lender, be it from Texas or any other state, may have a different credit benchmark. Usually, 620 FICO score is a common requirement for most VA loan lenders.
Understanding VA Loan Entitlement After Foreclosure
VA loan entitlement is a financial commitment from the Department of Veteran Affairs to guarantee a certain portion of the loan amount if borrowers default on their payment. Veterans mostly use at least some portion of the entitlement each time they make a purchase. When veterans default on a home loan, they lose the entitlement they utilized. In order to get the entitlement amount back, they need to repay the VA loan in full. Sometimes, however, veterans may still have some entitlement left over to apply for another VA home loan.
Things to Remember
VA loan entitlement doesn't guarantee that veterans would get a VA mortgage after foreclosure. Debts, income and credit score of the applicants are also key determining factors for loan approval. Borrowers need to fulfill the lending and VA requirements, even if they have enough entitlement left. Entitlement and credit are the two most important factors that veterans need to look into when applying for another VA loan after a foreclosure. Subsequently, to rebuild their credit, veterans need to work with a lender to determine the remaining entitlement for seamless processing of another VA loan.
If you have any questions or wish to learn more, do get in touch with one of our representatives for a no-obligation free consultation.