Can a Veteran Get a VA Loan If They Have Foreclosed

By Bethany Eanes

The Department of Veterans Affairs, or VA, offers insurance to borrowers who are currently serving in the military or those who are honorably discharged. These individuals face unique credit complications when applying for loans, and the VA assistance can help them attain a mortgage they would otherwise not qualify for. If you are applying for a VA loan, you will still be subject to a credit check, and a past foreclosure can affect your ability to qualify.

Many military veterans have a short credit history as they do not require much borrowing while in the service. It is also possible they missed payments in the past while training or deployed. These types of credit blunders are the reason the VA steps in to assist veterans; it is okay to have a few small errors on your report when you apply for a VA guarantee. However, the VA will take a closer look if you have major credit issues, such as a foreclosure or bankruptcy.

If you fail to pay a mortgage the VA guarantees, the VA must step in and pay it for you. Obviously, this poses a large risk to the VA. The VA does not take this risk lightly; it is spending tax payer money. As a result, if the VA thinks there is a chance you will fail to pay your mortgage, it will not likely work with you. Having a recent foreclosure may give the VA reason to believe you are not a responsible borrower at this time.

Ultimately, the VA will send up a red flag if you have a foreclosure within the past two years. This is grounds for immediate disqualification from the VA loan program. If your foreclosure is past this timeframe, you may still qualify for the guarantee. However, if the loan you entered foreclosure on was a VA loan, there may be additional complications. You will have to ensure you settled any past debts with the VA, which can take much longer than two years, prior to being eligible for a new VA loan.

Credit is not the only consideration the VA will make. It is also noteworthy to know the VA has income requirements to ensure you can afford the debt. The VA extends loans to low income borrowers, but the loans will have low limits. One perk to applying for a VA loan if you have low income is the low down payment requirement -- as low as 3.5 percent -- to help you afford the home. Ultimately, this makes a VA loan ideal for a low income, medium credit borrower who needs the VA assistance to make home buying affordable. If you qualify for a mortgage without VA assistance, it may be best to go with a conventional loan to receive higher loan limits and less regulation.

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