VA loans can buy foreclosures. You can use the VA loan again if you have been foreclosed before on a home, this can come with some lender restrictions.
Let’s dive into both sides of the VA loan on foreclosure topic, buying a foreclosed home with your VA loan and what it looks like to use your VA loan after going through a foreclosure yourself.
Learning the ins and outs of the Veterans Affairs (VA) requirements when it comes to purchasing a home in foreclosure is similar to purchasing a home that is a normal personal seller owned sale. The importance of timelines is something to consider. Your mortgage lender will need to review your qualifying factors before allowing you to use the VA loan. This means you cannot buy a foreclosed home that is sold from the court steps for all cash using the VA loan. The process of communicating with a bank can be a little harder and take longer than just talking to a private seller.
The flip side of buying a foreclosed home is living through foreclosure and trying to use your VA loan again. It is refreshing to know that even Veterans and their families are treated with respect and encouraged to use their benefits again after they have suffered and made it through hard times. As they say, “life happens”! The great news is that with a little bit of education on waiting, also known as seasoning periods and credit score drops, you can not only use your benefits again, but you can thrive learning the second time around how to buy, hold and invest in your future.
See What You Qualify For
Using an application process, lenders will give buyers their budgets for a new home purchase. When applying for a mortgage loan, things like your credit score will play into the overall terms of your loan. In order to use a VA loan, the buyer must first meet the eligibility set forth by the VA. Once the buyer is approved to use the VA loan, a qualified lender who is familiar with the VA loan will check out their credit rating and other items. This is the qualification process for the buyer. The next step is to start shopping while being mindful of the budget and find that perfect house. The loan amount will drive the monthly mortgage payments, as this is all part of the qualification process.
VA Loan on Foreclosure – Can You Buy A Foreclosed Property With A VA Loan?
Yes, you can buy a foreclosed property with a VA loan! This type of loan is just a regular VA loan. The closing costs will be the same as buying a non-foreclosed property. The VA loan for a foreclosed property will have some of the same qualifications you have in any private sale. The house cannot have any major defects that are structural and would make it disqualified for the VA loan requirements. The VA loan typically beats the conventional mortgage when it comes to keeping money in your pocket because you can finance the entire loan amount. In a purchase of a foreclosed house, as long as it meets the VA loan requirements, you can rest assured in most cases that you will be better off than if you were doing a loan request for a conventional because the VA will require an appraisal that some would say are a little more stringent than the regular loans out there. On a foreclosed house, that is such a benefit because the devil is in the details when looking over the home being structurally sound, and the VA appraiser is going to ensure that you are getting into a habitable home!
VA Rules Complicate Foreclosed Home Buying
VA rules complicate the foreclosed home buying process in some people’s eyes, but in reality, they are actually safeguards put in place to protect veterans and their families from using their entitlements on a property that is not move-in ready and or will not be safe. Foreclosures can sometimes be a complete disaster, even under cosmetic items; this scenario is what the VA is trying to avoid by their minimum property requirements.
The VA-Backed Loan Foreclosure Process
The VA-backed loan foreclosure process to purchase a property is simple when the buyer is a qualified veteran or family member who wants to purchase the home. As long as the property meets the VA property requirements and/or the seller/bank is willing to correct necessary items, the house will close without issue.
Things to Consider When Buying A Foreclosed Property With A VA Loan
There are many things to consider when you are buying a foreclosed property with a VA loan but rest assured, the VA loan ensures that the veterans using their VA loan benefits are taken care of. Veterans will go through the process of applying with a lender and will get the amount they qualify for after their application is looked at. Foreclosures can be in any condition, and this is important to know prior to trying to put in an offer. The VA will mandate that the house is structurally sound. That means, sure, it can need some paint, but it cannot be falling off of its foundation or missing large ticket items like half of the roof. With that being said, it is not as scary as some make it out to be; go see what the home looks like and talk to your realtor who is familiar with foreclosure purchases with the VA and the overall VA standards and if it makes sense to put in an offer go for it!
Foreclosed Homes and Minimum Property Requirements
Foreclosed homes and minimum property requirements using a VA loan are the same requirements when buying a sale that is not in a foreclosed status. The VA will mandate that the home is, but not limited to:
- For residential use
- Electricity is sound
- The heating and cooling systems are operational
- The roof is in good condition
- Mold is not existent
- Water and sewer available are functional
- Drainage is correct for the structure and land
- No lead-based paint
Addressing MPR Issues on Foreclosed Homes
Addressing minimum property requirements (MPR) issues on foreclosed homes can sometimes be difficult. When the bank is not willing to make any updates even if they are to bring the property to the standards of the VA this can make the property hard to close.
This is my favorite part of being part of a community that shares our stories and experience; My very first purchase was with a VA loan, and it was a foreclosure! My property was one that did need some roof work and a few GFCI outlets corrected and fixed; it also had some items that came up in the appraisal but guess what? The bank fixed every single issue requested after our inspection, except the pink countertops but those were cosmedic! So how did I luck out? I wouldn’t call it luck; it was done with a great realtor. Our realtor was honest and helped the seller realtor who was representing the bank get contractors out. Sometimes it is not about the money tied to the fixes but more about the fact that there is a bank seller vs. a person who is reviewing the documents and the relationships built. I tell you this, so you know not to be scared off by having to address items a little further. Ask your realtor questions about what can be done. This property is now one of my highest cash-flowing properties in the portfolio.
Home Inspections and Foreclosed Properties
Home inspections and foreclosed properties go hand in hand. Home inspections are a great way to have proof of items that need to be fixed. In some cases, the foreclosure property will have a realtor representing the bank. With the bank being the seller, it will not typically be a back-and-forth conversation that is easily accessible. Therefore, having documented items that are VA requirements and mandatory to close from a professional home inspector will be essential. This professional documentation will allow the bank to review the buyer’s requests for fixes and make a quicker decision on what they do and do not want to fix.
Is Purchasing a Foreclosed Home with a VA Loan Worth the Hassle?
Purchasing a foreclosed home can sometimes be the same amount of hassle as using your VA loan for any other property. Like all homes, the condition will matter. If the property is completely destroyed, it may not be something you are interested in because you know upfront the seller, which is the bank, may not want to correct conditions. Another train of thought, some foreclosures are nicer than houses that are on the market in a regular for sale by owner status. It really depends on the property price, amount of corrections needed, your timelines, and any other preferences that go into buying a home.
Getting a VA Loan After Foreclosure
Getting a VA loan after foreclosure is possible. Believe it or not, the VA loan is much more forgiving than conventional loans. Not paying your VA loan with the repayment plan or loan terms, will cause a foreclosure. As we all know, sometimes things come up that were not planned, so let’s talk about what you will need to consider after a VA loan foreclosure and executing your next VA loan. You will typically have a waiting period of two years, which is shorter than the conventional and FHA loan waiting periods. With lenders having the ability to be more flexible with terms because the VA loan is government-backed, you will typically see more favorable loan terms in your next purchase then when buying with a conventional loan.
What is a VA Loan Foreclosure?
A VA loan foreclosure is the same as any conventional and other loan programs that require monthly payment where the loan is not paid, and the bank takes the property from the owner. The foreclosure on a VA loan does have options prior to getting to a point where the home is taken away from the borrower. If you find yourself in jeopardy of being foreclosed on, make sure you do not just give up. Take a moment and stop, regroup and call your bank and see if they have any terms that can help you in your particular situation.
The Difference Between VA loan Forbearance And VA loan Foreclosure
The difference between VA loan forbearance and VA loan foreclosure is simple, one is the step before the other. Special forbearance can be requested by anyone who has a federally backed loan, such as a VA loan. This is a great tool when life happens, and someone cannot meet the full payment or even needs a reduced amount for a small period of time. Forbearance is a request for a period of time to delay payments of one’s loan. This can in most cases be considered for up to 180 days of delay. Foreclosure is what will come once the buyer is too far behind or has utilized all loan payment reductions or non-payments that are approved by the lender.
Can You Get a VA Loan After Foreclosure?
Yes, you can get a mortgage lender to give you a VA loan after foreclosure! Keep a positive attitude and continue to get your credit score up by making payments on time, and not overextending yourself.
Loss Mitigation
Loss mitigation is a service or third party that is typically able to help the bank reduce the loss to the bank when a borrower is showing signs of failing to pay their loan’s monthly payments. When it is noticed that a buyer is not able to pay their mortgage note, many of these third parties will start to reach out and see what the bank can do to assist in keeping the loan current and or changing the terms of the loan to try to make it more favorable to the homeowner. The overall goal for loss mitigation is to save the bank from loss, increase the number of successful mortgage loans and reduce foreclosures.
VA Foreclosure Seasoning Periods
The VA foreclosure seasoning period refers to the time between the initial foreclosure to the time you can get another loan. The VA foreclosure seasoning period is substantially shorter than other loans. The VA loan seasoning period is a two year waiting period.
Foreclosure & VA Loan Entitlement
A reduced VA loan entitlement will be an outcome of foreclosure in many cases. It is very important to request a Certificate of Eligibility (COE) with your lender to understand in any scenario what your loan entitlement is with an official COE.
Education is truly power when it comes to using your VA loan benefits for both buying a foreclosure and recovering after a foreclosure. There are truly a lot of moving pieces on both sides of the foreclosure process. Take the information you have learned and continue to strive to find the perfect new home to invest in. Most often, simply researching, using your realtor, and asking the lender questions about your specific situation you will be pleasantly surprised at what you find.
ADPI Pro Tips
- Shop for and look at all of the houses on the market. Make sure your lender knows you want to avoid taking foreclosures off the list of properties to look at.
- Don’t skip out on the home inspector; they will give you an official report which will help you with the communication with banks
- Request a longer inspection period when buying a foreclosed home, you know upfront it is likely going to be a bit longer for the bank to respond so don’t put yourself in a rushed position.
