VA Loan After Foreclosure Waiting Period Requirements
VA loan after foreclosure waiting period requirements is the same for deed-in-lieu of foreclosure and short-sale. Foreclosure, deed-lieu of foreclosure, and short sale all have the same waiting period requirements to qualify for VA loans. Veterans who have lost their homes due to a prior foreclosure can qualify for a VA loan after foreclosure two years after the recorded foreclosure date and sheriff’s sale.
The Veterans Administration is a federal mortgage insurance agency for private lenders originating and funding VA loans. If borrowers default on a VA loan, the Veterans Administration will partially insure the VA loans. Lenders will not have to cover all the losses of the foreclosure or default of the VA loans. In the following paragraphs, we will cover qualifying for a VA loan after the foreclosure waiting period requirements.
VA Loan Requirements
Here is how the Veterans Administration and the VA loan program work:
- VA loans offer 100% financing, and the Veteran home buyer requires no down payment to purchase a home
- The Veteran Borrower needs to have served in a branch of the U.S. Military, have an honorable discharge, and have a Certificate of Eligibility.
- The Certificate of Eligibility is also referred to as the COE
- VA allows up to a 4% seller concession by the home seller to contribute to the Veteran home buyer
- So a Veteran home buyer can purchase a home with zero money out of pocket
- Zero down payment and all closing costs covered by the sellers’ concessions
VA loans are for owner-occupant primary home loans only. Second homes and investment mortgages are not eligible for VA loan financing.
How Can Buyers Avoid Closing Costs on VA Loans
If the home seller does not give a seller’s concession or the home buyer is short with closing costs, the lender can cover the buyer’s closing costs with a lender credit instead of a slightly higher mortgage interest rate.
The role of the Veterans Administration or VA is to insure and guarantee VA loans that are originated and funded by private mortgage lenders. Private lenders who are VA-approved will fund VA loans.
If the VA loans funded by private lenders were to default and go into foreclosure, VA would guarantee the loss to lenders. Mortgage interest rates on VA loans are among the lowest of any other loan program. Even though the borrower does not put any money down because of the VA Loan Guaranty Program.
VA Certificate Of Eligibility
There is a one-time VA Funding Fee. But that VA Funding Fee can be rolled into the VA loan balance. There is no mortgage insurance premium with VA loans. VA loans are one of the easiest mortgage loan programs to qualify for. ONLY VETERANS with a COE are eligible for VA loans.
VA loans are only for owner-occupant primary properties. Veteran borrowers can qualify for one unit to the four-unit owner-occupied property with a VA loan.
VA does not have a debt-to-income ratio requirement. VA does not have a minimum credit score requirement. Gustan Cho Associates has no lender overlays on VA loans.
VA Loan After Foreclosure Waiting Period Requirements Versus Other Loan Programs
All mortgage loan programs have a mandatory waiting period after foreclosure, deed-in-lieu of foreclosure, short sale, and bankruptcy. However, VA has a more lenient waiting period after foreclosure, short sale, and deed-in-lieu of foreclosure to qualify for VA loans. Here is the waiting period after foreclosure, deed-in-lieu of foreclosure, short sale, and bankruptcy to qualify for VA loans :
- VA requires a two-year waiting period to qualify for a VA loan after foreclosure.
- VA requires a two-year waiting period to qualify for a VA loan after the deed-in-lieu of foreclosure.
- VA requires a two-year waiting period to qualify for a VA loan after a short sale.
- VA requires a two-year waiting period to qualify for a VA loan after bankruptcy.
FHA Waiting Period Requirements
Here is the mandatory waiting period to qualify for FHA loans after foreclosure, deed in lieu, short sale, and bankruptcy:
- HUD requires a three-year waiting period to qualify for an FHA loan after foreclosure
- HUD requires a three-year waiting period to qualify for an FHA loan after the deed-in-lieu of Foreclosure
- HUD requires a three-year waiting period to qualify for an FHA loan After a short sale
- HUD requires a two-year waiting period to qualify for an FHA loan after bankruptcy
USDA Waiting Period Guidelines On USDA Loans
Here is the waiting period to qualify for USDA Loans after foreclosure, deed-in-lieu of foreclosure, and bankruptcy:
- USDA requires a three-year waiting period to qualify for a USDA loan after a foreclosure
- USDA requires a three-year waiting period to qualify for a USDA loan after a deed-in-lieu of foreclosure
- USDA requires a three-year waiting period to qualify for a USDA loan after a short sale
- USDA requires a three-year waiting period to qualify for a USDA loan after a bankruptcy
Fannie Mae And Freddie Mac Waiting Period Guidelines on Conventional Loans
Here is the waiting period to qualify for Conventional Loans after foreclosure, deed-in-lieu of foreclosure, and bankruptcy:
- Fannie Mae and Freddie Mac require a seven-year waiting period to qualify for a Conventional loan after a foreclosure.
- Fannie Mae and Freddie Mac require a four-year waiting period to qualify for a Conventional loan after a deed-in-lieu of foreclosure.
- Fannie Mae and Freddie Mac require a four-year waiting period to qualify for a Conventional loan after a short sale.
- Fannie Mae and Freddie Mac require a four-year waiting period to qualify for a Conventional loan after bankruptcy.
As you can see, if you compare the waiting periods after foreclosure, deed-in-lieu of foreclosure, and a short sale of qualifying for VA loans versus other loan programs, VA loans have the most relaxed and least waiting period requirements.
Meeting the mandatory waiting period after foreclosure, deed-in-lieu of foreclosure, short sale, and bankruptcy does not guarantee VA loan approval. The Veteran Borrower needs to meet other VA Guidelines and be able to pay the new VA home loan.
Remember that private lenders are the ones that are funding the VA loans, and each lender has their lending requirements and does not want to extend credit to borrowers who are not credit qualified.
What Do Underwriters Look at Underwriting a VA Loan After Foreclosure?
Here are key factors lenders will be looking at it when underwriting a VA loan:
- The two-waiting period start clock begins from the record date of the foreclosure or deed-in-lieu of foreclosure or date of the sheriff’s sale that is reflected on the county records and not the day that the keys were surrendered
- Lenders will pay special attention to late payments after the foreclosure, deed in lieu, short sale, bankruptcy
- Lenders will look at payment shock
- By Payment Shock, the underwriter will evaluate your current rent payment compared to your new proposed mortgage payment.
- Is the borrower’s employment stable, and is it likely to continue for the next three years?
- Can the borrower afford the new mortgage payment plus all other debts?
- Residual Income is required and taken into strong consideration with VA loans.
- What extenuating circumstances led to the foreclosure, and have those circumstances changed so that it will not happen again?
Has the borrower re-established credit after the foreclosure?
Lender Overlays on VA Loan After Foreclosure
VA loans are one of the most lenient mortgage loan programs to qualify for. However, not everyone can qualify for VA loans. You must be a Veteran of the U.S. Armed Forces with an honorable discharge and a valid Certificate of Eligibility. Many VA lenders have overlays on VA loans. Lender Overlays are higher lending standards than the minimum VA guidelines. Examples of overlays on VA loans are the following:
- Lenders may require a 620 Credit Score when VA Guidelines do not require a minimum credit score requirement.
- Lenders may require a maximum debt-to-income ratio of 41% to 45% DTI requirement when VA Guidelines do not have a debt-to-income ratio requirement.
- Lenders may want borrowers to pay off the outstanding collection and charge off accounts when VA Guidelines do not require it.
If you are a Veteran interested in qualifying for a VA loan and need a VA lender with no lender overlays, contact us at Gustan Cho Associates at 800-900-8569 for a faster response. You can also email us at gcho@gustancho.com. The team at Gustan Cho Associates is available evenings, weekends, and holidays seven days a week.
