How To Qualify For VA Loans After Foreclosure And Short Sale

This BLOG On Qualifying For VA Loans After Foreclosure And Short Sale Was UPDATED On January 18th, 2018

The United States Department Of Veteran Affairs (VA) is the government agency that insures VA Loans. Here are the general loan requirements to be eligible for VA Loans:

  • There is no down payment requirement on VA Loans
  • There is no annual mortgage insurance premium on VA Loans
  • VA offers low mortgage interest rates
  • VA allows 4% sellers concessions by home seller for veteran home buyers closing costs
  • If short with closing costs, lender can give lender credit
  • VA does not have minimum credit score requirements
  • VA does not require any caps on debt to income ratios

The Gustan Cho Team at USA Mortgage is a direct VA Lender with no mortgage overlays on VA Loans

Qualifying For VA Loans After Foreclosure And Short Sale

Government and Conventional Loan Programs mandate a waiting period after bankruptcy and/or housing event. VA is much more lenient when it comes to qualify for VA Loans After Foreclosure And Short Sale than any other loan program.

Waiting Period After Bankruptcy and/or Housing Event on VA Loans is the following:

  • Both VA and FHA require 2 year waiting period after Chapter 7 Bankruptcy 
  • Borrowers can qualify for VA and FHA Loans During Chapter 13 Bankruptcy
  • Borrowers can qualify for VA and FHA Loans 12 months into a Chapter 13 Bankruptcy Repayment Plan
  • There is no waiting period to qualify for VA Loans after Chapter 13 Bankruptcy discharged date
  • There is a two year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for VA Loans
  • The waiting period is three years on FHA Loans after foreclosure, deed in lieu of foreclosure, short sale

Benefits Of FHA Loans Versus VA Loans

FHA allows for non-occupant co-borrowers. However, the only co-borrowers allowed on VA Loans are only married spouses of the veteran. If married and only one spouse is under foreclosure and/or short sale, the other spouse can qualify for FHA home purchase loan.

  • Cases like these are very typical where the home under foreclosure and/or short sale is under one spouse’s name and the other spouse is on title but not on the note
    • The spouse that has no ties to the note can qualify for FHA Loans as long as they can qualify with their own credit and income
    • They would need an automated approval per DU or LP FINDINGS from the Automated Underwriting System
  • Rental verification cannot be used since the home the qualifying spouse is not currently paying the mortgage or rent

Cases above will only work with FHA Loans.

When Is Verification Of Rent Required?

Rental verification may be required for mortgage loan borrowers with credit scores under 620. It is strongly recommend that the qualifying spouse have credit scores of 620 or higher. If they don’t, we can help them boost their credit scores so they can have credit scores north of 620.

Credit And Financial Qualifications On FHA Loans Versus VA Loans

To qualify for VA Loans, only the Veteran Borrower is eligible. The spouse cannot qualify for VA Loans unless the veteran borrower is on the loan and the spouse is the co-borrower. However, this is not the case with FHA Loans. Home Buyers who are so called bailing on a potential exiting property that may go into foreclosure can qualify for FHA Loans with a spouse that is not on the current exiting property note. Those who are currently living in a home that are not on the note but the spouse is, borrower can qualify for a new mortgage loan on a new purchase.

  • But spouse that is currently under foreclosure and/or short sale cannot be on the mortgage loan
  • Buyer needs to qualify just with their own income and credit
  • Borrowers can qualify for a 3.5% down payment FHA Loans instead of a VA Loan with a credit score as low as 580
  • However, debt to income ratios cannot exceed 43%
  • If credit scores are over 620, borrower can qualify for a 3.5% down payment FHA Loan
  • However, debt to income ratio requirements will get capped at 46.9% front end 56.9% back end for an AUS automated approval

Borrowers With Under 620 FICO Credit Scores

Mortgage loan borrowers with credit scores under 620 credit scores, the automated system may or may not require rental verification.

  • For mortgage loan borrowers over 620 FICO, rental verification is normally not required
  • A letter of explanation will be required by the borrower concerning their current living arrangements and what caused the spouse to go into foreclosure and/or short sale.  Cases like these are very common where people get married and one of the spouse already owns a home but the other spouse had nothing to do with the home purchase and foreclosure and/or short sale

Veteran Borrowers interested in qualifying for VA Loans After Foreclosure And Short Sale with a direct lender with no overlays on VA Loans can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. The Gustan Cho Team at USA Mortgage has zero overlays on government and conventional loans.

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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