Getting a VA Loan After Bankruptcy or Foreclosure

You can still buy again

Many Veterans who went through a bankruptcy or foreclosure later buy a home with a VA loan. VA looks at why it happened and how you have managed money since. Lenders then add their own standards on top. The timelines below are common guides, not promises.

Chapter 7 bankruptcy

Chapter 7 wipes out most debts. VA generally asks that about two years have passed since the discharge date, not the filing date. If the bankruptcy was caused by something outside your control, such as a job loss, serious illness or a death in the family, and you have rebuilt good credit, a lender may approve you sooner with VA's guidance.

Chapter 13 bankruptcy

Chapter 13 is a repayment plan that lasts three to five years. You may be able to get a VA loan while still in the plan if:

• You have made about 12 months of on-time plan payments, and
• The bankruptcy trustee or court approves the new mortgage.

If your Chapter 13 is already discharged, many lenders treat it like a fresh start right away, especially if you finished the plan on time.

Foreclosure

After a foreclosure, many lenders want about two years before a new VA loan. A deed in lieu or short sale is often treated similarly. Some lenders are stricter.

How a past VA foreclosure affects entitlement

If the home you lost had a VA loan and VA paid the lender a claim, that amount stays charged against your entitlement until you repay it. You may still have enough remaining entitlement to buy again, especially in higher-cost counties, but you may need a down payment on a larger loan.

Repaying VA's loss can restore that entitlement. A VA loan technician can tell you the amount. For loans closed on or after January 1, 1990, you usually only owe VA back if VA finds fraud, misrepresentation or bad faith, but the entitlement is still charged until repaid.

What lenders look for

• Clean credit since the event: on-time payments on all accounts
• New credit built responsibly, such as a secured card or small loan
• Stable income and job history
• A letter of explanation describing what happened and what changed
• Enough residual income to meet VA's minimum

Step by step: getting ready to buy again

1. Get your bankruptcy discharge papers or foreclosure documents.
2. Pull your credit reports and fix any mistakes, like debts still showing as owed after discharge.
3. Rebuild credit with on-time payments and low balances.
4. Request your COE to see how much entitlement you have.
5. Write a short explanation letter with dates and causes.
6. Talk to two or three VA lenders, since overlays vary.
7. Save reserves if you can. They make approval easier.

Watch out for

• Credit repair scams that charge big fees up front. You can dispute errors yourself for free.
• Lenders that do not explain why they decline you. Ask for the reason and whether another lender might help.
• Taking on new debt too soon. A new car loan right before you apply can push your DTI and residual income the wrong way.

Bottom line

A past bankruptcy or foreclosure is a bump, not a dead end. Give yourself time, rebuild your credit, find out exactly what entitlement you have, and shop lenders who understand VA's rules.