VA Loans: What You Need to Know After Foreclosure
Foreclosure can be stressful to say the least. Once you’re ready to put that behind you and purchase a new home, you’ll no doubt be imagining the new kitchen and spacious backyard you might be able to purchase. The last thing you want to think about is your credit score. But after a foreclosure, FICO (the data analysis company responsible for giving credit scores) says your credit score could take a hit of as much as 160 points. That’s a long way to have to make up in a short time period if you’re looking to purchase again in the near future.As a VA buyer, you are slightly more fortunate than a traditional buyer if you’re in this situation. VA loans have more flexible credit requirements for buyers than conventional financing, so this can help you get back on your feet and into a home sooner.
When you’re looking into a VA loan after foreclosure, you will see the term “seasoning period” used a lot. It’s important to understand what that is so you know what you’ll need to do for your loan.
Seasoning period: The length of time you need to wait to get a new loan
Now that you know this terminology, read on:
Before You Foreclose:
Foreclosure means that a bank has lent money for a property that hasn’t been repaid, so basically, it is taking the property back to repay its loan. If you haven’t foreclosed yet, there are two options which may reduce your seasoning period. In this situation you can usually do one of two things other than actually foreclose:
1. Deed-in-Lieu
2. Short Sale
These are both looking into if you haven’t yet foreclosed, because while they are both considered negative credit events, they can look better on your credit report than a foreclosure.
After Foreclosure:
So let’s say you already have completed your foreclosure. In this case it is most likely going to be a minimum of a two year wait before you can qualify for another VA loan. In some cases of financial hardship, this seasoning period may be reduced.
This may seem like a long time to wait, but buyers who have gone through foreclosure and are applying for conventional financing need to wait a period of seven years!
Don’t Disregard Your VA Loan Entitlement
Your VA loan entitlement will be affected by foreclosure. It will likely be reduced, but after two years most applicants are able to use it in some form again. Each case is different, and the country in which you’re buying will also change the amount of the entitlement, so it’s good to have a loan specialist help you go over the options. This will ensure that you get the most out of your loan entitlement and into a home that’s right for you as soon as possible.
Having foreclosed on a property in the past can be discouraging, but when you’re ready, there are still plenty of options when it comes to obtaining a VA loan and the dream of owning your own home.
