It is possible to get approved for a VA home loan only two years after a foreclosure and immediately after a short sale. VA home loan guidelines are more lenient in this respect than just about any other type of financing. For a Conventional Fannie Mae to Freddie Mac loan the borrower would need to wait between 4 and 7 years after a foreclosure. Most Jumbo programs require 7 years. FHA will allow just 3 years. But VA only requires two years.
Re-Established Credit is Needed
Hopefully, the Veteran has re-established their credit since the foreclosure. It is important to make sure the foreclosure is reporting correctly on the credit report. There should be a $0 balance showing for the foreclosed mortgage account. Sometimes, if the borrower has never reviewed their credit report they end up being surprised to find that the foreclosing lender is still reporting a balance. As the 24 months near, a Veteran who is planning to purchase a home should make sure to review their credit report.
It is also important that no other credit derogatories appear on the credit report after the foreclosure. A VA underwriter does not want to see late payments or collection accounts occurring after a foreclosure.
Minimum FICO Score for VA Home Loan
A prior foreclosure will tend to have a negative impact on a borrower FICO score. However, with re-established credit and no late payments since the foreclosure, it is not unusual to see the FICO score increase to over 700. Most VA home loan lenders will need a 640 or 620 minimum FICO score, which shouldn’t be hard to achieve. Also
Some lenders will have “overlay” requirements. An overlay occurs when a lender enforces guidelines that are more restrictive than the standard VA requirements. Most lenders will follow the two-year requirement after foreclosure, but there are some that will want more time. Especially if the loan amount is greater than $453,100 (2018 Conforming Loan Limit), as is common in high-cost counties like Orange County or Los Angeles County. So if a lender tells you that they require more than two years, don’t get discouraged. Keep checking around. You will find there are lenders who do follow the two-year foreclosure guideline, even when the loan amount is greater than $453,100. This is important to know since the VA home loan zero down loan limit in Orange County is $679,650 (2018 limit).
VA Home Loan Pre-Approval will Help Clear Up Credit Issues
Pre-Approval for a VA home loan is an important first step in the home buying process. But it is even more important for someone with a previous credit issue like a foreclosure. As part of the Pre-Approval, the VA approved lender will run your credit and check the credit report for any errors. The loan officer will also run your loan through an AUS (Automated Underwriting System). If you get an Approval from the AUS, you are ready to start making offers on homes. If you don’t get the initial AUS approval, then the loan officer will at least be able to give you a roadmap to getting approved.
Authored by Tim Storm, an Orange County, CA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS #2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.