VA Loans After Bankruptcy And Foreclosure Versus Other Mortgages

This BLOG On VA Loans After Bankruptcy And Foreclosure Versus Other Mortgages Was UPDATED On January 8th, 2018

VA Loans are the best mortgage loan program available to home buyers. However, VA Home Loans are only for veterans with a honorable discharge and who have a Certificate Of Eligibility (COE) . Mortgage Rates on VA Loans are lower than any other loan program.

VA Loans Offer The Following:

  • 100% Financing
  • No annual mortgage insurance premium
  • No closing costs because VA allows up to 4% sellers concessions
  • If veteran borrower is short of closing costs, 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 and is governed by the Federal Housing Finance Agency (FHFA).

  • Conventional Loans are also called conforming loans 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 and 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 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 and 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 homeowners name and into the name of the mortgage 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 deed in lieu of foreclosure’s recorded date and not the date the paperwork was signed for both FHA and USDA Loans
  • With short sales, the three year waiting period after 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 more 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 deed in lieu of foreclosure and short sale, a home buyer can qualify for a conventional loan after a 4 year waiting period with 5% down payment

Mortgage Part Of Bankruptcy

Fannie Mae recently changed its rules for home buyers 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 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, 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 does not automatically qualify borrowers for mortgages.

  • Mortgage 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 home buyers 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 Loan During And After Chapter 13 Bankruptcy

The Gustan Cho Team at USA Mortgage 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 The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. USA Mortgage 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, The Gustan Cho Team at USA Mortgage will close the VA Loan as long as the veteran borrowers can meet the conditions of the AUS automated approval.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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