Many families have fallen victim to the economic crisis over the last few years. Additionally, many families have fallen victim to ‘life events’ – such as divorce, job loss, a disability, and the list goes on. Unfortunately life does not exempt military families from such events. As such, one of the results of ‘life events’ is foreclosure, which is a tough pill for families to swallow. However, the sky hasn’t fallen! Defaulting on a home loan, even a VA-insured one, doesn’t mean qualifying for a VA loan is out of the question.
The truth is another VA loan, even if you’ve defaulted on one previously, is a very real possibility. Regardless of whether you’ve experienced a foreclosure, a short sale, or a deed-in-lieu of foreclosure, you may very well still qualify for a VA loan.
The real question is – how much VA loan entitlement do you have remaining. You might have some of your entitlement tied up in the previously foreclosed home.
VA Loan Entitlement
Veterans who are eligible for a VA loan have what is called ‘entitlement’. Entitlement is the financial promise from the VA that they’ll repay part of your loan in the event you default. The VA will repay up to $104,250, in most areas of the United States. Being that the VA promises to pay up to 25% of the loan amount most veterans can borrow up to $417,000 ($104,250 X 4) without a down payment.
When you buy a home you’ll use some OR all of that entitlement, depending on the loan amount. If you lose your home to foreclosure then the entitlement remains with that property until the loan is repaid in full. Oftentimes, in a foreclosure, the entire amount of the loan is not paid in full therefore leaving a balance, thus a portion of your entitlement may be tied up in that foreclosed property.
Purchasing a Home After Foreclosure
Unless you defaulted on a really expensive home with a really big loan, you may have enough VA entitlement left over to qualify for another VA loan. The first step is to check your certificate of eligibility to verify how much entitlement you have left. Additionally, you’ll need to meet the standard credit, income and other lender required elements to qualify for a home loan.
How to Determine How Much Entitle You Have Left
Let’s assume you lost $50,000 in entitlement as a result of a previous foreclosure. Your lender will then determine how much entitlement you have left. Remember the VA will repay up to $104,250. Therefore, they’ll subtract the $50,000 you lost from the $104,250 max leaving a balance of $54,250. Keep in mind that the VA will typically pledge to pay 25% of the loan amount. Thus, $54,250 X 4 = $217,000. In this example you’d be able to borrow $217,000 without putting money down.
One little thing to keep in mind here – there’s a minimum loan amount of $144,000 (also referred to as second-tier entitlement). Therefore, if you don’t have enough entitlement left to get you up to $144,000 then the VA loan program may not be a fit for you.
This can be a little confusing and, keep in mind, there are other aspects to consider such as lender requirements to qualify (not just entitlement). Please contact me with all your questions @ email@example.com – I’m happy to help!