There is nothing fun about foreclosures, especially for military homeowners who used their VA home loan. But a loan program defined by big benefits has some even in the face of foreclosure:
Defaulting on one does not mean another VA loan is impossible in the future.
Using another VA loan after a short sale, foreclosure, or deed-in-lieu of foreclosure is not out of the question. It depends in large part on how much VA loan entitlement you have remaining, since some is likely tied up in the foreclosed property.
In fact, the VA loan program is among the most forgiving out there for “boomerang borrowers” looking to purchase after a foreclosure. Some VA lenders can move forward with financing just two years after the default.
Once that time passes, the question for most veterans isn’t whether they can get another VA loan for buying a home – it’s how much.
VA Entitlement and Foreclosure
Veterans who meet the VA’s service requirements have what’s called loan entitlement, which is essentially a dollar amount the VA guarantees in the event of default. There are two layers: primary entitlement is $36,000, and there’s a second layer of $68,250.
Veterans won’t be able to access the portion of their entitlement used to purchase the property that went into foreclosure unless that loan is repaid. But many will have enough entitlement remaining – you’ll hear it called secondary or second-tier entitlement – to obtain a VA loan with no money down.
For example, let’s say you lost $50,000 in entitlement when you defaulted. A VA-approved lender will subtract that from $104,250, which, again, is your full entitlement amount. The difference is $54,250. Because the VA generally guarantees a quarter of the loan amount, multiply that by four to calculate how much you may be able to borrow with no money down. In this case, it’s $217,000 ($54,250 x 4).
Prospective borrowers will find their entitlement amount on their Certificate of Eligibility, which they can get directly from the VA or with help from some VA-approved lenders like Veterans United Home Loans.
Regular Requirements
Just because you have some entitlement left over does not guarantee anything. The VA and the lender will have requirements you must satisfy, such as credit and income standards. Also, veterans who want to use their second-tier entitlement must seek a loan amount of at least $144,000.
One of the most difficult things for “boomerang buyers” is rebuilding their credit profile. Foreclosure can trample your credit score, which can take time to rebuild. VA lenders are generally looking for at least a 620 score.
