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How to buy a home with a VA mortgage with a bankruptcy or foreclosure

Bankruptcy and foreclosure are tough financial decisions that can take a toll on your financial profile. They affect not only your credit score but also your overall fiscal health.

If you have run out of choices and have decided to file for bankruptcy, it is essential to understand your options and how they will probably affect VA mortgage or home loan finance options.

Contrary to what most people think, bankruptcy or foreclosure does not automatically mean you forfeit your dream of purchasing a home. Unlike homeowners with conventional or FHA loans, you as a VA borrower can climb the homeownership ranks quicker due to the benefits that come with the program. Here is how you can buy a home with a VA mortgage with bankruptcy or foreclosure.

Benefits that VA loan programs offer

VA loan volume has been on the rise for the past 15 years. This increase can be attributed to VA loans being the most powerful mortgage option for surviving spouses, active military, and veterans. The program has helped thousands of its members achieve their dream home even after being declared bankrupt. Many benefits come with VA loans. The most important ones include;

VA loans do not require a down payment

The most significant advantage of the VA loan is that it does not require service members and veterans to buy their dream home without spending years on saving up for a lump-sum payment. Saving is not easy for you as a service member who is on the move most times. VA loan saves you this saving process as you can finance your home’s value without putting down any amount.

Low-interest rates

According to ICE Mortgage Technology, VA mortgage loans interest rates are about 1% lower than conventional mortgage loans. The low interests can be attributed to the loan being less risky. Also, Veterans United guarantees part of the loan, making the interest low. These lower interest rates help you save every month and throughout the life of your loan.

VA borrowers don’t need to purchase private mortgage insurance (PMI)

With conventional loans, you need mortgage insurance if you do not give a down payment. The insurance usually is 20% of the home buying price. However, with VA loans, you do not need to pay for mortgage insurance.

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Why a bankruptcy or foreclosure doesn’t eliminate you from purchasing a home with a VA loan

As a veteran, service member, or surviving spouse, you are entitled to many benefits. However, you can still find yourself in a situation where you need to file for bankruptcy. When faced with this reality, it is customary to worry that you may never qualify for a VA home loan. The truth is, bankruptcy does not eliminate you from getting a VA mortgage loan. You need to understand the process.

Your VA mortgage loan application process depends on the kind of bankruptcy you have filed. Here is a breakdown;

VA loans after Chapter 7 bankruptcy

Chapter 7 bankruptcy is referred to as “liquidation” bankruptcy, and it involves you selling your property to pay debts. If it has been two years or more since you discharged a chapter 7 bankruptcy, the Department of Veterans Affairs allows you to disregard it when applying for a VA loan. However, you still have to meet the income and credit standards required to be approved.

VA loans after Chapter 13 bankruptcy

Chapter 13 bankruptcy is commonly known as “reorganization.” It involves a repayment plan that helps you pay debts without selling your property. After completing the repayment plan within at least 12 months, you can be eligible for a VA loan if the trustee approves the application. Nonetheless, just like the Chapter 7 bankruptcy, you must meet the required income and financial standards.

VA loans after foreclosure

You are not disqualified from getting a VA loan after having a foreclosure in your credit history. All you need is to clearly describe the circumstances that led to the foreclosure when applying for the loan.

How to increase your eligibility for VA mortgage loans

Though bankruptcy and foreclosure don’t disqualify you from getting a VA mortgage loan, it is advisable to have a good credit score before applying to improve your chances of qualifying for the loan. Increase your credit score by doing the following;

  • Establishing a history of paying your current bills on time and in full
  • Checking your credit report for any errors and working to correct them
  • Build an emergency fund
  • Sticking to a budget at all times


It’s possible to get a VA mortgage after a bankruptcy or foreclosure. If you’re facing foreclosure or bankruptcy and contemplating applying for a VA mortgage loan, please understand the points given above. They will make your application process easy and short.

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