Getting a VA Loan After Bankruptcy or Foreclosure
What the VA's underwriting guidance says, what lenders usually require, and how to get ready.
A bankruptcy or foreclosure does not end your VA home loan benefit. The VA's Lenders Handbook tells lenders to look at why it happened and how you have handled credit since. In practice, how long you wait depends on the type of event, the reason for it and the lender you choose.
What the VA's guidance says
| Event | General VA underwriting guidance |
|---|---|
| Chapter 7 bankruptcy, discharged more than 2 years ago | Generally can be disregarded if credit has been re-established |
| Chapter 7, discharged 1 to 2 years ago | Not by itself a reason to deny if you have re-established good credit or the bankruptcy was caused by circumstances beyond your control |
| Chapter 7, discharged less than 1 year ago | Generally hard to approve |
| Chapter 13 repayment plan | Can be acceptable once you have made about 12 months of satisfactory plan payments and the court or trustee approves the new mortgage |
| Foreclosure or deed in lieu | Evaluated on the circumstances and on credit since. Many lenders set their own waiting period, often around 2 years |
These are summaries of guidance that lenders apply case by case. Lenders can also add their own stricter rules, so two lenders may give different answers.
Circumstances beyond your control
The Handbook gives weight to the reason. A bankruptcy caused by a serious illness, a death in the family, a job loss or a divorce is viewed differently from one caused by overspending. Be ready to explain what happened in a short letter, with documents such as medical bills or a layoff notice, and to show what has changed.
If the foreclosed loan was a VA loan
When a VA loan ends in foreclosure and the VA pays a claim to the lender, the part of your entitlement used on that loan is not available again until the loss is repaid. You may still have remaining entitlement and be able to buy, but the amount you can borrow with no down payment can be lower. Your COE will show it. Our loan limits and entitlement guide shows how remaining entitlement sets the no-down limit.
How to rebuild before you apply
- Pull your credit reports and make sure the bankruptcy shows as discharged and the included debts show a zero balance.
- Open one or two small accounts, such as a secured card, and pay them on time every month.
- Keep rent and utility payments on time, and keep proof. A clean 12-month rent history helps.
- Save for reserves, even though no down payment is required.
- Talk to two or three VA lenders about your exact dates. Ask whether any requirement is a VA rule or their own.
If you are struggling with payments now
If you have a VA loan and are behind, contact your servicer and the VA as early as possible. The VA has loan technicians who can help you look at options such as repayment plans, loan modifications or a short sale, which can be less damaging than a foreclosure.
Frequently asked questions
How long after Chapter 7 can I get a VA loan?
Under VA guidance, a discharge more than 2 years ago can generally be disregarded if credit has been re-established. Some approvals happen between 1 and 2 years, especially when the cause was outside your control.
Can I get a VA loan while in Chapter 13?
It can be possible after about 12 months of on-time plan payments, with approval from the court or trustee.
Does a short sale count like a foreclosure?
Lenders often treat it similarly, but each one sets its own rules. Ask lenders directly.
Is there a minimum credit score after a bankruptcy?
The VA does not set a minimum credit score. Lenders set their own, and after a bankruptcy they look closely at the payment history since the discharge, so a year or more of on-time payments matters as much as the score.
Will my funding fee be higher if I had a VA loan before?
If you have used the benefit before, a new purchase with less than 5% down carries the subsequent-use rate of 3.30% instead of 2.15%. With 5% or more down the rate is the same as first use, and exempt borrowers pay no fee.
Sources
- VA Lenders Handbook (VA Pamphlet 26-7), chapter 4: credit underwriting
- VA.gov: help if you have trouble making payments
- VA.gov: entitlement and limits
This page is educational and is not legal, tax or financial advice. Rules and rates can change, so confirm the details with the VA and your lender.