Can You Get a VA Loan with a Bankruptcy?

If you’ve experienced bankruptcy, even in the last two years, you may still be eligible for a VA home loan. If you’re a veteran or active-duty service member, the VA wants you to bounce back quickly after a bankruptcy, foreclosure, or short sale.

In fact, you could be eligible for a VA loan only two years after a Chapter 7 bankruptcy and one year following a Chapter 13 bankruptcy—a short waiting period compared to conventional loans, which may require four to seven years.

So if you’re wondering if you can get a VA loan with a bankruptcy in your past, here’s how.

Rebuilding your credit score

While the VA doesn’t require a minimum credit score, its lending partners will, so you should give your credit score some love immediately following a bankruptcy. Here are ways to improve your credit:

• Pay your bills on time.
• Keep credit card purchases to a minimum.
• Try not to apply for any additional credit cards.

If your credit report shows you’ve made payments on time with low credit utilization and positive management of assets, you’ll be more attractive to potential lenders.

Check Your Eligibility

Once you’ve strengthened your credit score, check your VA Certificate of Eligibility. This document proves your VA-backed home loan qualification to potential lenders. Keep in mind you’ll need to meet your individual lender’s qualifications as well. In addition to your credit score, mortgage companies will look at your current income, debt-to-income ratio, and current employment. They’ll likely also request a VA-approved appraisal of your home to determine its actual market value.

Understanding full versus remaining entitlement

If you’re approved for a Certificate of Eligibility, it will indicate whether you receive full or remaining entitlement. If the VA awards full entitlement, you’ll have no home loan limit and no down payment. Additionally, the VA will ensure 25% of your loan, meaning the VA will reimburse your lender 25% if you default.

If the VA approves you for remaining entitlement, it won’t limit the home loan amount for which you can qualify. However, your financial institution will require a down payment if 25% of your total loan amount exceeds your granted entitlement, which is typically $647,200 in most areas.

Before you apply, you should also examine your finances and create a realistic monthly budget. This will determine if you’re financially secure enough to purchase a home following bankruptcy. Don’t forget to factor in additional home buying fees, such as closing costs, homeowners insurance, and moving expenses.

If you have additional questions about how you can get a VA loan with bankruptcy, reach out to an OVM professional, or start your application online. We’ll be happy to discuss your options and point you in the right direction. You can also check out our blog for articles about VA loan qualifications, a VA loan qualified mortgage, or how to transfer a VA loan to an LLC.