If you have been through a bankruptcy or lost a home to foreclosure, you may believe your VA home loan benefit is gone for good. Many veterans think this. It is not true.
I am Scott Carlin, a 20-year Air Force veteran and the broker behind TrueVet Mortgage. Under the VA’s own rules, a bankruptcy or a foreclosure does not, by itself, disqualify you. What matters is how much time has passed, what caused it, and how you have handled credit since. Here is how it works.
How the VA looks at a past bankruptcy or foreclosure
The Department of Veterans Affairs sets the credit standards for the VA loan program in federal regulation (38 CFR 36.4340). Those rules tell lenders to look at the facts behind a bankruptcy or foreclosure, not just the fact that it happened. The underwriter reviews when it happened, why it happened, and whether you have re-established good credit since.
Under the same rules, satisfactory credit is generally considered re-established after 12 months of on-time payments following your last negative credit item.
Chapter 7 bankruptcy: timing is based on the discharge date
For a Chapter 7 (liquidation) bankruptcy, the VA rule works on the time since your discharge, not your filing date.
- Discharged within the last 12 months: the VA rule says it generally will not be possible to show you are a satisfactory credit risk yet.
- Discharged one to two years ago: you can still qualify if two things are true. First, you have obtained new credit since and paid it on time. Second, the bankruptcy was caused by circumstances beyond your control, such as unemployment, medical bills, or a prolonged strike.
- Discharged more than two years ago: those two specific conditions no longer apply. The underwriter reviews your credit as a whole.
If you were self-employed and the bankruptcy came from a business failure, the VA rule also allows approval when your credit was clean before the business, clean since the bankruptcy, and the business did not fail because of misconduct.
Chapter 13 bankruptcy: you may not need to wait for it to end
The VA views a Chapter 13 (repayment plan) bankruptcy as an effort to pay your creditors. You can qualify after you finish the plan. You can also qualify before the plan is finished if both of these are true:
- You have made at least 12 months of payments to the plan on time.
- The bankruptcy trustee or the bankruptcy judge approves the new mortgage.
Foreclosure: the same review, plus an entitlement question
The VA rule says a foreclosure on a prior mortgage does not, by itself, disqualify you. The underwriter develops the facts the same way as for a bankruptcy: when it happened, why, and how your credit has been since.
Waiting periods for a foreclosure are not set as a fixed number in the VA rule, and lender standards vary. That is one reason it pays to have a broker compare several lenders for you.
What a foreclosure on a VA loan does to your entitlement
If the home you lost was financed with a VA loan, there is a second issue. The VA states that if a VA loan ends in a foreclosure, a short sale, or a deed in lieu of foreclosure, you need to pay back the amount the VA lost to restore your full benefit. Until then, your Certificate of Eligibility will not show full entitlement.
That does not mean you cannot buy:
- You may still have remaining entitlement to use on a new VA loan. Depending on the price, you may need a down payment. Our guide to using your VA loan more than once explains how remaining entitlement works.
- You can repay the VA’s loss to restore your full entitlement. A VA loan technician can tell you the amount owed.
- If the home you lost was financed with a conventional or FHA loan, the VA paid no claim on it, so this repayment rule does not apply. Only the credit review applies.
What to work on in the meantime
The time after a bankruptcy or foreclosure is when you build a stronger file:
- Pay every bill on time. The VA rule looks for 12 months of on-time payments after your last negative credit item.
- Re-establish credit. A small credit card or installment loan, used lightly and paid on time, shows new credit handled well.
- Keep your income stable. Steady employment helps the whole file.
- Be ready to explain what happened. A short, honest, specific explanation helps the underwriter weigh the circumstances.
- Rebuild savings. The VA rule treats liquid assets as an important factor, so savings help a borderline file.
Your credit score matters too. The VA does not publish a minimum score. Instead, you must meet both the VA’s and your lender’s credit standards, and lender standards vary. A “no” from one lender is not a “no” from the VA.
Why a broker matters on a file like this
After a bankruptcy or foreclosure, the difference between lenders can be large. One lender may add extra waiting time or require a higher score than another. A bank can only offer its own rules.
As a broker, TrueVet Mortgage compares your file across multiple lenders and finds one whose standards fit your situation. We serve veterans across Florida and Texas, including Palm Bay, Melbourne, Titusville, Fort Walton Beach, San Antonio, and Abilene.
Frequently asked questions
How long after a Chapter 7 bankruptcy can I get a VA loan?
Under the VA rule, a discharge within the last 12 months generally will not qualify. A discharge one to two years ago can qualify if you have re-established credit and the bankruptcy was caused by circumstances beyond your control. After two years, the underwriter reviews your credit as a whole.
Can I get a VA loan while I am still in a Chapter 13 bankruptcy?
Yes, it is possible. You need at least 12 months of on-time plan payments, and the bankruptcy trustee or bankruptcy judge must approve the new mortgage.
How long do I have to wait after a foreclosure?
The VA rule does not set a fixed number. A foreclosure does not disqualify you by itself. The underwriter looks at when and why it happened and how your credit has been since. Lender standards vary, so it helps to compare lenders.
Do I lose my VA loan benefit if I lost a home that had a VA loan?
Not permanently. To restore your full entitlement, you need to repay the VA’s loss. You may also be able to buy with any remaining entitlement you still have.
What about a short sale or a deed in lieu of foreclosure on a VA loan?
For entitlement, the VA treats them the same way as a foreclosure. If the VA had a loss on the loan, you need to repay it to restore your full benefit.
Will a bankruptcy make my loan cost more?
Your credit history is one of several things a lender weighs when pricing a loan, so it can have an effect. Time since the event, your payment history since, and your income stability all matter. Comparing several lenders also helps.
Find out where you stand
If a bankruptcy or foreclosure is in your past, do not guess. Dates matter, entitlement matters, and lender standards vary. We will review your credit and your Certificate of Eligibility and tell you where you stand and what to do next. If you are ready now, see the VA loan process and our VA loan requirements.
Call or text 321-364-4461, or send us a message.
See all of our VA loan guides.