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Late Payments and Foreclosure

Borrowers seeking a VA Loan who have a history of late payments that are reflected in their credit may have difficulty obtaining loan approval. Lenders often look for candidates with a history of timely repayment on all credit obligations, which will reflect their willingness to repay future obligations, such as a VA loan.

However, individuals with a history of late payments are not automatically disqualified. Satisfactory credit can typically be restored after 12 months of continuous on time payments. The 12 month period begins after the date of the most recent delinquent payment. Additionally, the borrower's full credit history is reviewed, taking into account the comprehensive credit behavior of each individual. Therefore, isolated incidents of delinquent payments may not prevent an individual from being approved for a VA loan if suitable explanations can be provided.

Once the loan has been obtained, it is important that borrowers make their loan payments on time. Perpetual late payments can result in foreclosure and judgment against the borrower. If the individual knows that the payment cannot be made for unavoidable reasons (such as illness, divorce, job loss, etc.) the lender should be contacted immediately with an explanation for the delinquency. In some cases, the lender can work with the borrower to arrange a repayment plan in hopes of avoiding foreclosure.

Preventing Foreclosure

Just like with any conventional loan, VA loans that are not paid back in a timely manner are foreclosed upon. In the event of a foreclosure, the borrower loses the home and the Department of Veteran Affairs takes the house into their possession. For this reason, it is crucial to take all of the necessary steps to prevent foreclosure on your VA loan. Check out the foreclosure prevention tips below for more information.

Contact Your Lender

The first and most important step in preventing foreclosure is to contact your lender immediately when you realize that you will have a problem making a payment. The lender will likely be able to work with you to set up an alternate payment plan during difficult or unexpected financial situations.

Read and Understand All Correspondence from Your Lender

Once you are late on a payment for you loan, you will receive a notice from your lender. It is important to read, understand, and respond to these notices. The notice will have information about foreclosure prevention or pending legal action. It is your responsibility to read and understand all of this information; doing so may help you prevent or at least understand the foreclosure process.

Do Your Research

Maintain and reference your loan documents to find out what your options are and what the lender may do when payments are missed. Additionally, you will want to contact the State Government Housing Office to find out what the foreclosure laws are in your state, as they vary from state to state.

Evaluate Your Finances

A good way to prevent missing loan payments and avoiding foreclosure is to prioritize your spending. Once you receive your loan, it should be the second most important payment you make, following healthcare. Cut back on optional expenses and use a credit card for other spending if necessary in order to ensure that you will be able to make your mortgage payment without any problems.

Use Your Assets

When faced with the possibility of foreclosure on your home, you may want to consider selling some assets for cash in order to reinstate your loan (perhaps a car, life insurance policy, etc.). Anything that can be sold for cash to put toward your loan will help. Even getting a second job for extra income can be beneficial and demonstrate your efforts to keep your home to the lender.

Avoid Scams

There are many companies that may contact you about your foreclosure promising to renegotiate with your lender and stop your foreclosure for a large fee. These companies are only charging for information that can be obtained at no charge from your lender or a loan counselor. There are also many scams that involve a company offering to act on your behalf to stop the foreclosure. In order to do so, they will require you to sign a document. In this scam, homeowners unknowingly sign over the title to their home. It is important to avoid such companies that promise to stop your foreclosure.

Seek Counseling

A great way to ensure that you understand the foreclosure process and your options is to seek housing counseling. The Department of Housing and Urban Development (HUD) offers nationwide free or low cost counseling. This counseling will help you understand your options, offer assistance in negotiations with your lender, and evaluate your finances.

VA Refunding

When a VA loan has been in default for an extended period of time, the Department of Veterans Affairs may choose to purchase the loan in an effort to assist the borrower. The loan is purchased from the lender and the VA takes over full service of the loan and the remaining mortgage payments.

This does not occur often, since most lenders are able to work out most non-payment issues with borrowers, but in circumstances in which the lender does not have any other foreclosure alternatives, the VA may purchase the loan to try to save the borrower's home. Instances in which VA refunding occurs often involves situations where the borrower is not able to make payments due to extreme difficulties, but has solved, or will solve, their extenuating circumstances in the near future and continue payment on the loan.

It is important to note that Department of Veterans Affairs will not consider a VA refund on loans that have been in default for an excessive period of time (6 months or more). Loans in default for six months or longer are considered to be an insoluble default and will result in foreclosure proceedings against the borrower.

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