There are a few things related to VA loans and foreclosures that everyone using a loan guaranteed by the U.S. Department of Veterans Affairs (VA) should know. Whether your home is at risk of foreclosure or you’re interested in buying a foreclosed home, we have the information you need.
What You Need to Know About VA Loans and Foreclosures
As Investopedia explains, foreclosure is the legal process that comes into play when a homeowner is repeatedly unable to pay their mortgage payment. It allows the lender to take possession of the property and sell it in hopes of recouping the funds that they are owed. Foreclosures can be devastating for those going through them, but they provide opportunities for others.
What happens when VA loans and foreclosures cross paths?
What If the Home That You Purchased with a VA Loan Is at Risk of Foreclosure?
Using a VA loan allows you to purchase a safe, inhabitable home with no down payment, a competitive interest rate, and other favorable loan terms. Although this form of financing’s VA-backing can provide you with an appealing loan that can help you secure the home of your dreams, that backing is also a promise to lenders that reduces their risk in lending to qualified applicants. It does not make you immune to foreclosure.
What happens if someone who funded their home purchase with a VA loan fails to make their loan payments? They can turn to the VA for assistance. As the VA indicates, the organization will provide financial counseling to anyone with a VA loan. In fact, any veteran or surviving spouse who is having trouble making their mortgage payments can take advantage of this service, even if they don’t have a VA loan.
According to The Mortgage Reports, the VA made more than 500,000 contact actions to reach borrowers and loan services in fiscal year 2017 to help them reach mutually agreeable repayment options when borrowers were having trouble making payments. These efforts helped nearly 100,000 homeowners avoid foreclosure during that period. Unfortunately, not all homeowners were ultimately able to escape foreclosure. In these situations, they went through the standard foreclosure process dictated by the laws of their state.
What If You Want to Buy a Foreclosure with a VA Loan?
Lenders do not want to own homes, so when they come into possession of properties through foreclosures, they generally try to sell them at auction or through real estate agents. This can provide a great opportunity for homebuyers to snag a fantastic bargain. As Military.com indicates, you can use a VA loan to purchase a foreclosed property as long as it meets the requirements of the VA loan program.
As Smart Asset reports, the basic process of buying a foreclosed home is similar to buying a normal property. You’ll want to start by visiting a lender to get pre-approved, find a property that you want, put in an enticing offer, get the necessary appraisals and inspections done, and head to closing. However, buyers must be wary of a couple things when it comes to foreclosures.
First, foreclosures bought at auction often require an immediate payment, and cash buyers have a distinct advantage, according to U.S. News & World Report. As a result, individuals hoping to use a VA loan are often better off looking for foreclosures that are in the hands of a real estate agent. Second, foreclosures are generally sold as is, and damage and neglect are common issues. As MilitaryTimes points out, this situation can cause headaches for any buyer, but it presents unique difficulties for buyers using VA loans because any property purchased with this form of financing must pass a VA appraisal.
What Are VA Real Estate Owned Properties?
When foreclosures do not sell to a third party, ownership sometimes passes to the VA. As Military.com explains, VA Real Estate Owned Properties are available to veterans and nonveterans and can be purchased with a VA loan or some other form of funding. If you are interested in seeing if one of these properties might be the ideal way for you to combine VA loans and foreclosures, you can browse online listings of VA-acquired properties.
If you’re interested in using your housing benefits to secure a home with a VA loan, it’s always a good idea to work with an experienced lender who understands all the ins and outs of the VA loan process. At PrimeLending: Manhattan, Kansas, we are proud to serve those who have served. We’ve helped thousands of veterans and active duty service members successfully navigate the process of financing a home purchase, and it would be our pleasure to assist you. Contact us today to learn more about our services and schedule a consultation.