This BLOG On VA Loans After Bankruptcy And Foreclosure Versus Other Mortgages Was UPDATED On January 19th, 2019
VA Loans are the best mortgage loan program available to home buyers.
- However, VA Home Loans are only for veterans with an honorable discharge and who have a Certificate Of Eligibility (COE)
- Mortgage Rates on VA Loans are lower than any other loan program
- Lenders can offer lower mortgage rates on VA Loans than Conforming Loans due to government guarantee
- No down payment requirement and 100% financing is what makes VA Loans very attractive
In this article, we will cover and discuss qualifying for VA Home Loans after bankruptcy and/or housing events.
Benefits Of VA Home Loans
VA Loans Offer The Following:
- 100% Financing
- No annual mortgage insurance premium
- No closing costs because VA allows up to 4% sellers concessions
If the veteran borrower is short of closing costs, the lender can offer lender credit.
Government Loans Versus Conventional Loans
VA Loans are considered government loans.
- Government Loans are home loans for owner-occupant borrowers that is guaranteed by the federal government
Here are the three government loan programs in the United States:
- VA Loans guaranteed by the Department of Veterans Affairs
- FHA Loans guaranteed by the U.S. Department of Housing and Urban Development (HUD), the parent of FHA
- USDA Loans guaranteed by the U.S. Rural Development: Department of Agriculture
Conventional Loans are not government loans. Conventional Loans are governed by the Federal Housing Finance Agency (FHFA).
- Conventional Loans are also called conforming loans
- This is because they need to conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines
- Lenders need to conform to Fannie/Freddie Guidelines in order for them to be able to sell conforming loans they originate and fund on the secondary market
Fannie and/or Freddie will not purchase conventional loans that do not conform to their mortgage guidelines.
What Does Government Guarantee Mean?
Government Loans, such as VA Loans, offer easy financing at low-interest rates because of government guarantee.
- In the event, if a government loan defaults, the lender is covered against losses by the guaranteeing government agency
- For example, if a veteran borrower defaults on their VA Loan, the Department of Veteran Affairs will cover the loss to the lender from the defaulted loan that forecloses
- The guarantee by the government enables lenders less risk
This is due to less risk can offer government loans with no money down (VA, USDA) or little money down (FHA) at very low-interest rates.
Waiting Period Requirements On VA Loans After Bankruptcy And Foreclosure
Federal mortgage lending guidelines have a waiting period after bankruptcy and foreclosure requirements to qualify for a residential mortgage loan.
- VA, USDA, FHA and Conventional loan programs have their own waiting period after bankruptcy and foreclosure
- We will discuss government and Conventional loan waiting period after bankruptcy and foreclosure requirements
Mortgage After Bankruptcy And Foreclosure Waiting Period
There is a mandatory two year waiting period after Chapter 7 bankruptcy to qualify for VA and FHA Loans
- The two year waiting period after bankruptcy clock starts from the discharge date of the bankruptcy for both VA and FHA Loans
- There is a mandatory three year waiting period after foreclosure to qualify for FHA and USDA Loans
- The three year waiting period clock starts from the date the foreclosure was recorded on public records
- Not the date that the keys were surrendered or the date of the sheriff’s sale
- The name on the deed has to have been out of the homeowner’s name and into the name of the lender or new home buyer and recorded in the recorder of deeds office
- The same rule applies for a deed in lieu of foreclosure
- There is a mandatory three year waiting period after a deed in lieu of foreclosure’s recorded date
- Not the date the paperwork was signed for both FHA and USDA Loans
With short sales, the three-year waiting period after a short sale clock starts ticking from the date of the short sale date reflected on the HUD settlement statement.
Conventional Mortgage After Bankruptcy And Foreclosure
Conventional mortgage after bankruptcy and foreclosure is stricter than government mortgage after bankruptcy and foreclosure lending requirements.
- There is a mandatory 4-year waiting period after Chapter 7 Bankruptcy discharged date to qualify for conventional loans
- There is a 7 year waiting period after foreclosure to qualify for a conventional loan
However, with a deed in lieu of foreclosure and short sale, a home buyer can qualify for a conventional loan after a 4 year waiting period with a 5% down payment.
Mortgage Part Of Bankruptcy
Fannie Mae recently changed its rules for homebuyers who had a foreclosure part of their Chapter bankruptcy.
- Borrowers who had mortgage part of Chapter 7 bankruptcy, the waiting period to qualify for a conventional loan is 4 years from the date of the bankruptcy discharge date
- The housing event (foreclosure, deed in lieu of foreclosure, short sale) can be finalized at a later date
However, with government loans, the waiting period starts from the finalized housing event.
Waiting Period To Qualify For VA Loans After Bankruptcy And Foreclosure
VA has much more lenient mortgage guidelines with a waiting period to qualify for VA Loans After Bankruptcy And Foreclosure.
- The two-year waiting period after Chapter 7 Bankruptcy discharged date is two years like FHA Loans
- However, the waiting period after foreclosure, deed in lieu of foreclosure, a short sale is two years to qualify for VA Loans
Just Passing The Waiting Period After Bankruptcy And Foreclosure Does Not Automatically Guarantee Mortgage Approval
Just waiting out the waiting period after bankruptcy and foreclosure do not automatically qualify borrowers for mortgages.
- Lenders do not want to see any late payments after a person has filed bankruptcy or had gone through a foreclosure, deed in lieu of foreclosure, or short sale
- Re-establishing credit after bankruptcy and foreclosure is extremely important for potential homebuyers who intend in qualifying for a home mortgage loan in the near future
- Many folks who just went through the traumatic experience of a bankruptcy or foreclosure do not want to do anything with new credit and want to purchase items via cash
- Unfortunately, this practice will end up hurting the consumer
For those who recently went through a bankruptcy or foreclosure should immediately start re-establishing their credit by getting a few secured credit cards with at least $500 credit limits.
VA Loans After Bankruptcy And Foreclosure: During And After Chapter 13 Bankruptcy
Gustan Cho Associates has no VA Lender Overlays on Chapter 13 Bankruptcy.
- Veteran borrowers can qualify for VA Loans one year into a Chapter 13 Bankruptcy Repayment Plan
- There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA Home Loans
- However, any VA Home Loan without a two-year seasoning after Chapter 13 Bankruptcy discharged date needs to be manually underwritten
Contact us for more details.
Qualifying For VA Loans After Bankruptcy And Foreclosure
Veteran borrowers who need to qualify for VA Loans After Bankruptcy And Foreclosure with a direct lender with no mortgage overlays on VA Loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. Gustan Cho Associates has zero overlays on VA Loans After Bankruptcy And Foreclosure. We are available 7 days a week, evenings, weekends, and holidays. VA Loans After Bankruptcy And Foreclosure only require two year waiting period versus other mortgage loan programs. VA does not have any minimum credit score requirements or debt to income ratio requirements. As long as veteran borrowers can get an approve/eligible per Automated Underwriting System Findings, Gustan Cho Associates will close the VA Loan as long as the veteran borrowers can meet the conditions of the AUS automated approval.