If You Defaulted on a Past VA Loan, Can You Get Another One

By Lisa Bigelow

Among the rights that servicemen and women enjoy after serving their country is the right to veterans' benefits. Of these benefits, the right to secure a mortgage loan at favorable rates and with less stringent underwriting guidelines is one of the most treasured. Although foreclosure of a past VA mortgage loan will make it more difficult to qualify for a future VA mortgage, it's not impossible; however, veterans must be prepared to meet higher qualifications.

It's difficult for any homeowner to secure a new home loan after foreclosure, but not impossible. Since loan payment history is the best indicator of a borrower's willingness to repay a new loan, those who have been foreclosed upon must display the utmost in financial responsibility afterward. This includes maintaining a pristine credit history to reestablish credit. This is critical, because VA-approved lenders have the right to insist that these borrowers meet higher underwriting requirements before approving them. The VA insists that veterans wait a period of two years after foreclosure before applying for a new VA loan.

In addition to the two-year wait period and higher credit history requirements, if the home loan that was foreclosed upon was a VA-sponsored loan, the borrower must be willing to repay the loss to the VA before she can apply for another VA loan. VA sponsored loans are guaranteed by the government; if the veteran defaults, the VA makes a payment to the lender in the amount of the shortfall. If she wants another loan, the veteran must be willing to repay this amount directly to the VA; if she does, her "full entitlement" benefit will be restored.

If the shortfall from the previous entitlement has not been repaid in full to the VA, then there may not be enough in the entitlement left for a veteran to take advantage of the "no money down" benefit. As a result, the veteran may be required to meet lender requirements, which would include putting additional money down toward the home's purchase; this is known as "partial entitlement," and this scenario makes the loan process longer.

Any homeowner, not just a veteran, who has suffered through a foreclosure will have to explain himself fully to a lender that is considering issuing him a home loan. This may include describing the circumstances surrounding the foreclosure. Some circumstances, such as job loss or unpaid medical bills, may be considered extenuating; others, such as divorce or high credit card debt, won't be looked upon with compassion. Nevertheless, lenders spend a considerable amount of time and effort evaluating loan applications; if you've done your homework and are responsible and well-prepared, a new VA home loan could be in your future.

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