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Can a Veteran use the VA home loan benefit to buy a foreclosure home?

Can You Buy a Foreclosure With A VA Loan?

Can You Buy A Foreclosed Home With A VA Loan?

This is a really good question that I got from a Veteran in California. Emmett asks me: can a veteran buy a foreclosure or a pre-foreclosure home?

The simple answer is yes, it is possible to buy a foreclosed home using a VA loan, as long as that property meets the VA’s minimum requirements.

And that’s where the challenge comes in.

Now a foreclosure obviously would be a home that the previous owner defaulted on, potentially the bank owns it or an investor potentially owns it now. That makes no difference with a VA loan.

Now, what you may run into … And this was very, very common quite a few years ago. I don’t see this as often. But back when the mortgage industry collapsed in 2009, there were a lot of foreclosures.

What would happen is these foreclosures, the banks would take the foreclosures, they’d put them back on market, and they would have a special addendum to the purchase contract that said that the property was sold as-is and they would not put any work into it. They wouldn’t put any upgrades, they wouldn’t do any repairs.

They had never lived in the home because obviously, they were the bank that foreclosed, and they weren’t really interested in throwing good money after bad. They were already in a situation where the owner defaulted, and they were just trying to get their money back.

That might be a situation that you would be concerned about, like if the bank owns it and they say, “We’re not going to do any repair.” VA loans do require that you have a termite inspection or a pest inspection. That’s a requirement of VA.

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VA Loan Requirements

The VA has built requirements into their system to make sure that their veterans get the best home possible, and aren’t saddled with a bunch of problems when they move into the house.

So, in order to get a VA loan, the home has to meet certain requirements, including:

  • It must be a residential property
  • The roof can’t have any major defects
  • Broken windows must be fixed or replaced
  • There can’t be any lead-based paint in the property. Since most paint prior to 1978 was lead-based, all paint must be scraped and repainted if the house is older than that
  • All the major mechanical systems like heating, air conditioning, plumbing, sewage, and electrical must be working and in good mechanical condition
  • It has to be pest and termite-free
  • It can’t have any fungus or dry rot
  • It has to be big enough for basic living needs
  • It has to have accessible and properly ventilated attics and/or crawl spaces
  • It has to have access to all-weather public or private streets

If there are any problems with any of the above, the seller has to fix them before a VA loan can be approved.

And that’s the problem – if the bank or investor has designated the home as being sold as-is, and any of these problems need to be fixed in order to get a VA loan, either the VA loan won’t get approved, or the seller has to change their policy and make the improvements so the loan can be approved.

This process is further complicated because oftentimes people who are facing foreclosure don’t make basic repairs to the property because they’re going to lose it anyway. And, making matters worse, sometimes the property sits vacant for some time after foreclosure, increasing the probability of damage, vandalism, and exposure to the elements. So, foreclosure homes have a higher chance of having issues than regular properties. Keep that in mind as you consider buying a foreclosed home.

But that’s not really unique to VA loans. That’s going to be the same whether it’s conventional or an FHA loan or any other type of loan, so the fact that it’s a foreclosure.

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Short Sales, Pre-Foreclosures, And VA Loans

Now a pre-foreclosure could be a short sale. Short sale, again not a problem. The only difference is who owns the home. On a foreclosure, maybe the bank owns the home. On a pre-foreclosure, it could mean that the home is in default and the owner’s still there.

Even though the loan is in default and it could be foreclosed, they could be going through the short sale process. They could be trying to get a loan modification or a deed in lieu of foreclosure. They could be doing almost anything.

Again, as long as the property is safe, there are no health or safety concerns, you can absolutely use a VA loan to buy a home that was lost by a deed in lieu of foreclosure, short sale, or a foreclosure. None of these things is an issue.

There are no restrictions on VA loans on what type of property you can buy as long as the property is in good condition and you’re going to be safe and there’s no health problems, mold, or things like that in the property.

Yes, you can absolutely buy a foreclosure or a pre-foreclosure. There are no restrictions on VA loans on what type of property you can buy as long as the property meets VA guidelines. I hope this was helpful. Thank you for your question and thank you for your service.

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Jerald fisher says:

    If you don’t use all your Va loan amount do you get the difference?

    • Scott Schang says:

      This is a really good question, Jerald. You do not “get” the difference as cash or credit, but it is available for future use. An example of this might be if you decide to convert your primary home with a VA loan into a rental in the future, you could use the difference in your VA Guarantee to purchase a new primary residence.

      THANK YOU for your Service! I hope this helps?