As you look for a home today, chances are you will stumble across a foreclosure or two. If you are a veteran and you want to use your VA financing, you may wonder if looking at a foreclosed home is even worth it. Will the VA allow you to buy it with the VA program?
The short answer is ‘yes,’ you can buy a foreclosed home with VA financing. The longer answer is that it depends. The same property guidelines will pertain to a foreclosed home as they do for a standard home sale. The home must be in good condition. If the home has missing handrails, holes in the walls, and pest damage, it won’t be eligible. If it’s in decent condition, though, there’s a good chance you’ll be able to buy it with VA financing.
Don’t Bid at a Foreclosure Auction
One word of caution we would like to lead with is don’t bid on a foreclosed home at an auction. Typically, in these situations, you have to pony up the cash for the home in the next 24 – 48 hours. If you know anything about the mortgage industry, you know that you can’t get a loan closed in that short of a period. You need more like 30 – 45 days.
Now if the home doesn’t sell at the auction and the lender lists it in the MLS, as a regular sale, then you can proceed. This way you give your bid, negotiate the sale, sign a contract, and have some time before you have to be at the closing.
The Property Will be As Is
Typically, foreclosed homes are sold as is. In other words, whatever is wrong with them is going to remain that way when you take possession of the home. The bank is unlikely to fix anything that is wrong with the home. This could mean that the home won’t pass the VA appraisal. If this happens, you won’t be able to buy the home with VA financing.
But you have choices:
- You can walk away from the purchase and look for another home.
- You can ask the bank to fix the issues, but they probably won’t do it.
- You can pay for the repairs yourself.
Paying for the repairs yourself will solve the issue of the home not passing the VA appraisal. But you do take a risk. You are paying for repairs on a home that you don’t own yet. What if something goes wrong with the financing and the deal falls through? You aren’t going to get that money back, so proceed with caution.
All Other VA Guidelines Prevail
With the exception of the issues you may have with the appraisal, everything else remains the same when you buy a foreclosed home with VA financing. You’ll need to meet the following requirements in order to qualify:
- 620 credit score on average
- 43% total debt ratio
- Stable income and employment
- No defaulted federal loans
- Enough disposable income appropriate for your family size and location
- Eligibility for the VA program with enough time in service and an honorable discharge
If you are eligible, you may receive up to $453,100 in financing, depending on the county the home resides. Each county has their maximum limit, some of which are higher than $453,100. On average, though, veterans receive the eligibility to receive $453,100 in financing. The exact amount you receive depends on what you can afford based on your income and other debts.
You will not have to make a down payment whether it’s a foreclosed home or a standard sale. The VA will provide the VA lender with a guaranty. This guaranty lets the lender know that the VA will pay them back 25% of the funds they lose if you default on the loan. It has nothing to do with whether it’s a foreclosure or not.
Buying a foreclosed home definitely has its issues, but they are easily overcome, even with the VA loan. Make sure you shop around for the right lender that provides you with the best rate and term as well as has enough experience handling foreclosed homes so that you are in good hands when you get your financing for this deal of a home.