Alex Carlucci The Mortgage Expert,
Publish On: April 29, 2024
In this blog, we will discuss and cover qualifying for a VA loan with prior mortgage included in bankruptcy. VA home loans are the best mortgage loan program in the United States. Only active servicemen and women, retired veterans, reservists, spouses of deceased veterans, and National Guard members of our military with a valid Certificate of Eligibility (COE) are eligible for this unique loan program. The creation and implementation of VA home loans was a thankful gesture by our government for the appreciation of our veterans. VA Agency Guidelines are much more lenient than other home mortgage programs. In the following paragraphs, we will go over every aspect of qualifying for a VA loan with prior mortgage included in bankruptcy.
What Role Does The Veterans Administration on VA Loans
The Department of Veterans Affairs is not a lender. Veterans Affairs does not originate nor fund home loans. Private lenders originate VA Loans. The role of the VA is to partially insure and guarantee VA mortgages funded by lenders in the event homeowners default and foreclose on their homes. In order for Veterans Affairs to insure defaulted loans, lenders need to adhere to VA Mortgage Guidelines. For any homeowners who do not meet VA Guidelines, VA will not insure and guarantee them against the loss due to borrower default. Due to this government guarantee, lenders are able to offer VA Loans with no money down, 100% financing, no mortgage insurance, and lower than conventional mortgage rates. Click Here to connect with our experts for VA Loans
VA Loan With Prior Mortgage Included in Bankruptcy
Suppose you are considering applying for a VA loan but have had a prior mortgage included in a bankruptcy. In that case, there are specific guidelines and waiting periods that you’ll need to understand. Here’s a general outline of what to expect. The bankruptcy must be discharged before applying for a VA loan. The timing can vary depending on the type of bankruptcy:
- Chapter 7 Bankruptcy: Typically, you must wait two years from the discharge date before you can be eligible for a VA loan.
- Chapter 13 Bankruptcy: If you’ve made court-approved payments on time for at least 12 months, you may qualify sooner.
It’s beneficial to seek financial counseling to understand the implications of taking on a mortgage post-bankruptcy and to ensure you are in a stable financial position to avoid future difficulties.
Including a Previous Mortgage in Bankruptcy
Foreclosure vs. Bankruptcy: If your previous home was secured with a VA loan and was included in the bankruptcy, it’s crucial to check if the VA loan entitlement used on the defaulted mortgage has been restored. If the property was foreclosed on despite the bankruptcy, the entitlement amount tied to the defaulted loan may remain until the VA loan is repaid. Entitlement Restoration: You can apply to have your full entitlement restored if you have paid off the previous VA loan in full and no longer own the property. This restoration allows you to utilize your VA loan benefits again under the right circumstances.
Steps to Take
Obtain Your Certificate of Eligibility (COE): This document shows whether you have remaining VA entitlement and are eligible to apply for another VA loan. Consult with VA-approved lenders. They can provide detailed information based on your specific circumstances, including the impact of bankruptcy on your eligibility. Credit Rebuilding: Ensure you rebuild your credit post-bankruptcy to meet the VA loan credit requirements. For detailed guidance and to ensure that you meet all the necessary criteria, it’s advisable to consult directly with a lender who specializes in VA loans or contact the Department of Veterans Affairs. They can provide specific advice based on your situation and help guide you through applying for a VA loan after bankruptcy.
VA Loan Credit Requirements
The U.S. Department of Veterans Affairs has created and implemented very lax and lenient credit guidelines to make veterans easier to qualify for VA Loans. VA realize that veterans may have less than perfect credit than their civilian counterparts due to deployment There are mandatory wait periods to qualify for VA Loans after a housing event and Bankruptcy. VA loans have the most lenient agency mortgage guidelines compared to other government loan programs. The Veterans Administration made homeownership possible for eligible veterans by creating lenient mortgage guidelines with no down payment required. Click Here to Qualify for VA Loan with US
How Long After Bankruptcy and Foreclosure Can I Get a VA Loan?
The Veterans Administration has the most lenient mortgage guidelines after bankruptcy and foreclosure. There is a two-year waiting period after bankruptcy, foreclosure, a deed in lieu of foreclosure, and a short sale on VA loans. For FHA Loans, there is a three-year waiting period after the housing event and a two-year waiting period after Chapter 7 Bankruptcy.
How Long After Chapter 13 Bankruptcy Can I Get a VA Loan?
Borrowers can qualify for VA and FHA Loans one year into their Chapter 13 Bankruptcy Repayment Plan with Trustee Approval. Both VA and FHA Loans do not have any waiting period after the Chapter 13 Bankruptcy discharged date. Outstanding collections and charged-off accounts do not have to be paid to qualify for both VA and FHA Loans. Both VA and FHA Loans allow manual underwriting. There are no credit score requirements and no debt-to-income ratio caps on VA Mortgages. Most lenders have overlays on VA Loans.
What Are Underwriting Overlays on VA Loans?
What overlays are additional lending requirements above and beyond those required by the Department of Veterans Affairs? Most mortgage companies require a 620 to 640 credit score and have 43% to 50% debt to income ratio caps when the VA does not require that. VA does not have any minimum credit score requirement. VA does not have any debt-to-income ratio caps. Lenders require a certain credit score or DTI requirement due to them having their own internal overlays. Gustan Cho Associates Mortgage Group has no overlays on government and conventional loans. We will be discussing VA Loan With Prior Mortgage Included In Bankruptcy on this blog.
Waiting Period For VA Loan With Prior Mortgage Included in Bankruptcy
There are certain requirements with regards to the waiting period to qualify for VA Loan With Prior Mortgage Included In Bankruptcy. If a consumer had a mortgage or mortgages included in their Chapter 7 bankruptcy, there is a two-year wait period from the discharged date of Chapter 7 to qualify for VA Loans. The consumer cannot reaffirm the mortgage. The housing event (foreclosure, deed in lieu, short sale) does not need to be finalized. There is no waiting period after the housing event if the mortgage was included in the bankruptcy. The two-year waiting period clock starts from the Chapter 7 discharge date. The foreclosure does not matter. Veterans who included a prior VA Loan in their Chapter 7 Bankruptcy need to make sure if they have enough Entitlement left to qualify for another VA Mortgage. If another type of mortgage was included in Chapter 7 Bankruptcy and the VA Entitlement was not affected, then veterans will have full entitlements. Qualify for a VA Loan included in Bankruptcy
How Do I Get Approval on a VA Loan With Prior Mortgage Included in Bankruptcy
Not all lenders have the same lending requirements on VA Home Loans. Just because a borrower was denied by a lender does not mean that they will not qualify with a different lender. Most lenders have overlays on government and conventional loans. VA does not require a minimum credit score requirement. VA does not have any debt-to-income ratio caps. However, most lenders will require a 620 to 640 credit score. Again, most lenders will have 43% to 50% debt to income ratio caps when the VA does not require it. Gustan Cho Mortgage Group has no overlays on government and conventional loans. This means we do not have a credit score nor debt to income ratio requirements. To start the pre-approval process, contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays.
FAQs about VA Loan With Prior Mortgage Included in Bankruptcy
- What is a VA loan, and who is eligible for it? VA loans are available to active servicemen or women, retired veterans, reservists, spouses of deceased veterans, or National Guard members with a valid Certificate of Eligibility from the VA. This mortgage loan program is only available in the United States and provides great opportunities for those who qualify.
- What role does the Department of Veterans Affairs (VA) play in VA loans? The VA does not directly originate or fund VA loans. Instead, it guarantees a portion of the loan amount provided by private lenders. This guarantee incentivizes lenders to offer favorable terms such as no down payment, 100% financing, no mortgage insurance, and lower interest rates.
- Can I qualify for a VA loan if my previous mortgage was included in bankruptcy? Yes, it’s possible to qualify for a VA loan after bankruptcy. Still, there are specific guidelines and waiting periods you must adhere to. Before you apply for a VA loan, it’s important to ensure that your bankruptcy has been discharged. You may have to wait for a different amount of time before becoming eligible, depending on whether you filed for Chapter 7 or Chapter 13 bankruptcy.
- How long must I wait after bankruptcy to qualify for a VA loan? Typically, you must wait two years from the discharge date for a Chapter 7 bankruptcy to qualify for a VA loan. However, you may qualify sooner for a Chapter 13 bankruptcy if you’ve made court-approved payments for at least 12 months on time.
- What steps should I take if my previous mortgage was included in bankruptcy? You should obtain your Certificate of Eligibility (COE) to verify your remaining VA entitlement and eligibility for another VA loan. You should consult VA-approved lenders for tailored information based on your situation. Also, rebuilding your credit after bankruptcy is important to meet VA loan credit requirements.
- Is there a waiting period after foreclosure or other housing events to qualify for a VA loan? A 2-year wait is required after bankruptcy, foreclosure, deed instead of foreclosure, or short sale for VA loan eligibility.
- What are underwriting overlays on VA loans? Underwriting overlays are additional lending requirements imposed by mortgage companies above those required by the VA. While the VA does not have specific credit score or debt-to-income ratio requirements, some lenders may set their own thresholds.
- How do I get approval for a VA loan with a prior mortgage included in bankruptcy? Not all lenders have the same requirements for VA loans. While the VA itself does not set minimum credit score or debt-to-income ratio requirements, individual lenders may have their own overlays. It’s recommended to explore different lenders and consult with experts to find the best fit for your situation.
- How can I start the pre-approval process for a VA loan? To start the pre-approval process for a VA loan, you can contact Gustan Cho Associates at 800-900-8569, text for a faster response, or email at gcho@gustancho.com. They are available seven days a week, including evenings, weekends, and holidays.
These FAQs provide a comprehensive overview of qualifying for a VA loan with a prior mortgage included in bankruptcy. If you have further questions or need personalized assistance, feel free to reach out to us directly.
