In a perfect VA loan financing world, everyone would have 800 credit scores and we could give out VA loans like Oprah gave out cars. Unfortunately, not everyone has pristine credit. Once in a while, we work with homebuyers who have had either a foreclosure or short sale in their past. Although these circumstances are not ideal, it does not mean that these veterans with blemishes on their credit report wouldn’t be able to qualify for VA financing. Go forth and read the parameters for applying for a VA loan in each scenario below.
Applying After a Foreclosure
There is a two year waiting period required from the completion date of the foreclosure on your property to the date of the new credit report used to qualify for the new VA loan.
Example: If Joe’s foreclosure completion date was 1/1/2013, he would not be able to apply for a new VA Loan until after 1/1/2015.
However, if the borrower can show evidence of “Extenuating Circumstances,” there is a possibility that the two year waiting period can be reduced down to one year. The circumstances must be classified as beyond the borrower’s control, such as the loss of a job, medical bills or the death of a wage earner.
Caution Regarding Extenuating Circumstances
A veteran who loses their job or has an unexpected illness that creates a financial hardship isn’t automatically granted a minimized waiting period. The threshold for using the extenuating circumstances pass is extremely high. Many factors would impact the determination that a situation did or did not meet this special criteria.
Factors considered in cases of Extenuating Circumstances:
- Was the only issue or derogatory event the short sale in question?
- How was their income / expense situation impacted?
- Did the borrower have other assets / resources to cover the short amount necessary to pay the loan in full?
- Were there already signs of financial concerns prior to job loss, illness or death?
Ultimately, we would have to conclude that the situation was completely out of the borrower’s control in order to reduce the VA loan wait period down to one year.
Applying After a Short Sale
Those who have experienced a short sale do not have a required wait period if the following two conditions have been met:
- the borrower wasn’t late on the mortgage that was paid off via the short sale and
- the borrower did not take advantage of declining market conditions (sold the property just to buy another property at a lower price).
If both of these conditions were not met, then the borrower would have to follow the same rules as a foreclosure, a two year waiting period from the completion of the short sale to the date of applying for a new VA loan.
As the saying goes, good things come to those who wait. This is true for applying for a VA loan after having a foreclosure or short sale. Keep in mind that there are instances when the waiting period between foreclosure/short sale and the new application are waived. In the meantime, work hard to rebuild your credit, be patient, and don’t hesitate to contact us with any questions at 808-792-4251.