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.

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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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