Getting A VA loan after bankruptcy or foreclosure

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Getting a VA loan after bankruptcy or foreclosure is really not that difficult for Veterans in Orange County, CA.  But many Veterans do not realize how quickly the VA loan can become a viable option after a major credit event.

 

Foreclosure and bankruptcy are definite obstacles for many Veterans trying to buy a home, but with the VA mortgage program it is possible to maneuver around these obstacles more quickly than with other types of financing. Bankruptcy’s and foreclosures only require a two year waiting period before qualifying for a VA loan.

Waiting Period After Bankruptcy

There are two primary type of bankruptcy that an individual can file for. A Chapter 7 bankruptcy seizes an individuals assets and liquidates their value to satisfy the necessary debts. All debts are “discharged” through the bankruptcy. The VA program requires a waiting period of two years after a Veteran discharges a Chapter 7 bankruptcy. A Chapter 13 bankruptcy is a court-mandated process that restructures an individual’s debt and sets up a repayment plan. Chapter 13 repayment plans can take anywhere from three years to five years to complete. The VA loan program will allow a Veteran to qualify for  VA loan after only a 12 month wait period, starting from from the date of the filing. The Veteran will need to prove that they have been making their Chapter 13 payments on time, but this is still a very opportunity for a Veteran to purchase a home. A potential borrower with Chapter 13 bankruptcy must also get permission from the bankruptcy trustee before taking on an additional monthly payment. It’s also important to note that it is possible to refinance into a VA loan and pay off the Chapter 13 with proceeds from the loan.

FICO Score Requirements for the VA Loan Program

Many VA lenders will look for a credit score of at least 620 when qualifying for a VA loan, but there are lenders who will go down to a 580 FICO score. Still, it is important to begin working on credit restoration immediately after the bankruptcy is discharged. To minimize the damage, it is very important to put a lot of effort into repairing and strengthening your credit score during their waiting period prior to qualifying. And definitely do not have any late payments after the bankruptcy is discharged.

VA Loan After Foreclosure or Short Sale

A foreclosure or short sale are also significant derogatory credit events. Most loan programs require wait periods of up to 7 years before qualifying for a loan. But VA only requires a two year wait period from the date of the foreclosure or short sale. The “clock” can start earlier than the actual recorded date of the foreclosure if the mortgage for the property was included in an already discharged bankruptcy and the Veteran can prove they moved out of the property prior to the bankruptcy discharge date.

Not all lenders underwrite the same. It is beneficial to meet with a local Orange County VA lender to ensure you are on the proper path toward future qualification. The VA loan specialist you consult with should be able to prepare custom loan scenarios that will provide you with the numbers you’ll need to know about before you start the home buying process.

 

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

VA Loan after Bankruptcy | Only 2 Year Wait for Orange County Veterans

get a va loan after bankruptcyGetting a VA loan after bankruptcy is not as difficult as many think. While most loan programs require anywhere from a 3 year (FHA) to 4 year (Conventional) to even 7 year (some Jumbo programs) wait period after a bankruptcy, the VA program only requires a 2 year wait after the discharge of a bankruptcy.

VA Loan After Chapter 7 Bankruptcy

Depending on the type of bankruptcy, the wait period could even be shorter. For a Chapter 7 bankruptcy, which is total discharge of debts, 24 months must pass from the date of discharge to the loan approval. And while some VA lenders will have “overlays”, or their own guidelines which may be tougher than standard VA guidelines, an eligible Orange County Veteran who knows how flexible VA can be will have a better shot at buying a home sooner rather than later by working with a lender with minimal VA guideline overlays.

Another important thing to know is that many VA lenders will allow a two year wait for loans under $417,000. But for VA loans over $417,000 they will require a longer wait. For Veterans in Orange County, where home prices are high and where the 100% financing limit in 2016 is $625,500, working with an Orange County, CA VA lender who will allow only a 2 year will be the difference between buying a home and not buying a home in 2016. This means it is possible to purchase a condo, within a VA approved condo project in Orange County, only two years after a discharged bankruptcy.

VA Loan Immediately After Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a restructuring of debt. In most cases the debts are not “discharged”, but are instead paid off over a specified time period. For example, if a Veteran has $25,000 in credit card debt, the court may create a payoff plan over a 3 or 5 year time period. It is actually possible to get a VA loan before the Chapter 13 is even discharged. If a perfect 24 month payment history in the Chapter 13 is proven then the Veteran can get VA financing. It is even possible to use a VA cashout refinance to pay off a Chapter 13. For someone looking to buy a home, there is no wait period after the discharge of the bankruptcy if they were in the Chapter 13 for at least two years and had a perfect payment history. (If you are in chapter 13, do not miss a payment.)

VA Loan After Foreclosure

The VA guideline for getting a loan after a foreclosure mirror their bankruptcy rules. Only a 2 year wait period is required. Even for loans oner $417,000. This is important to know because a very common overlay for VA lenders to is require between 4 and 7 years wait after foreclosure on for loans over $417,000.

Jumbo VA Loans and Bankruptcy

Understanding what a Jumbo VA loan is and how it enables a Veteran to finance a high priced home even after bankruptcy or foreclosure can be beneficial for a Veteran who may have had a rough financial stretch a few years ago. While most Jumbo loan programs are very restrictive when it comes to prior bankruptcies and foreclosures, the VA Jumbo program follows the standard VA guidelines of only a 2 year wait. Again, not all lenders follow the standard guideline, so knowing the guidelines and finding a local Orange County VA lender who follows the guidelines is important.

FICO Score Requirements for VA Loans

Technically VA does not have an official guideline for a minimum FICO score. Most lender will not go below 620 for loans under $417,000 and 640 for loans over $417,000. However, there are lenders who will go down to a 580 FICO score.

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Approval for VA Home Loan after Foreclosure or Short Sale

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, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com