Qualifying for a VA Loan after Foreclosure

A frequent question among borrowers is whether they can qualify for a VA Loan after suffering a foreclosure on a previous mortgage.

The VA Home Loan Guaranty Program's qualifying guidelines are very clear when it comes to a borrower with foreclosure history. Since repayment practices on past debts are the best indicators for willingness to pay future debts, a prior foreclosure can prevent someone from qualifying for a veterans' mortgage. However, a foreclosure does not make it impossible to qualify.

The U.S. Department of Veterans Affairs provides for a two-year recovery period from the date of foreclosure during which the veteran is not eligible. Thereafter, it is possible to qualify, however a borrower with a foreclosure in their past may have to answer more questions on the mortgage application when it comes time to borrow again. VA-approved lenders have authority to establish higher standards for approval.

In short, when a non-VA mortgage is foreclosed or a deed is given in lieu of foreclosure, then the veteran would not be eligible for a VA-backed mortgage for at least two years. A borrower can use the two-year waiting period to reestablish credit and show willingness and ability to pay future obligations.

If the foreclosure involved a VA loan, then not only must the borrower wait two years and repair credit before reapplying, but entitlement is affected as well. In order for a VA borrower to have full entitlement restored after foreclosure, he or she must repay the loss (the guarantied amount) suffered by the VA as a result of the foreclosure before being considered for another VA mortgage. If the entire amount of the loss is repaid, then the VA borrower may have full entitlement restored.

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