November 8, 2016, by Anum Yoon – The U.S. Veterans Administration (VA) offers home loans to veterans. Currently, more than 1.8 million veterans have home loans through the VA. Under its programs, veterans receive a number of benefits. There is no down payment needed in VA loans and in addition, closing costs and other fees related to buying a home can be financed through the VA.
VA loans do not require insurance premiums. The home loans through VA programs are financed by banks and other private lenders, but the VA guarantees the loan, which enables the lender to provide favorable terms.
However, people in every walk of life can run into difficulty paying their mortgage, favorable terms or not. When that happens, the bank may foreclose on a home loan. If that happens, the house is sold to pay the debt. After the sale, the homeowner no longer owns the house. The person who bought it at the sale does.
What Is Foreclosure?
Foreclosure refers to a process by which the bank takes possession of a property if a homeowner has stopped paying the home loan payments, also called mortgage payments. If a homeowner misses a number of payments, he or she is in default. This is violation of the legal contract that is part of receiving a mortgage, in which the homeowner agreed to pay mortgage payments.
Foreclosure is an orderly procedure. If a homeowner is in default, the lending institution must get in touch with the homeowner. They are often given the chance to make up the missed payments, which stops the foreclosure.
If they cannot make up the missed payments, however, the lender may file for foreclosure. States vary in their exact rules. There are states that must go through the courts to file a foreclosure, a judicial foreclosure, and states in which there is a procedure, but it does not go through the courts, a nonjudicial foreclosure.
What Happens to Homes in Foreclosure?
Often a homeowner can make up missed payments through the time that the foreclosure is in process. People facing foreclosure should check the procedures in their state. If the payments are not made up, the house is sold to satisfy the home loan debt.
The homeowner in foreclosure can generally stay in the house until it is sold. However, once it is sold, it belongs to the person who bought it, and the former homeowner must leave.
In the case of a foreclosure on a VA loan-financed home, the VA buys the mortgage from the lender and offers the house for sale through auction. This is often termed repossession, or repo. The houses are often on sale at prices below market value.
How to Get Help With Foreclosure If You Are a Veteran
Foreclosure can be very stressful, and there are multiple reasons for it. A lost job, divorce or even expensive repairs to a house can cause a person to fall behind on payments.
However, the VA also offers help to veterans who are facing foreclosure. They have a long track record of support for veterans undergoing foreclosure and have helped up to 300,000 veterans avoid it. It may be possible to lower your interest rate, and, in some cases, the VA takes over the loan servicing from the existing servicer – a process called refunding. The lowering of the interest rate is often called a streamline refinance and is officially dubbed an Interest Rate Reduction Refinance Loan (IRRRL).
There are several advantages to refinancing a loan. The first, of course, is that it may lower your interest rates. The second is that it is possible to get one if your home loan is under water — in other words, if your house is now worth less than the amount of the original mortgage. It is also possible to receive an IRRRL for a house you don’t currently occupy, such as a rental, which is not generally possible through other lenders.
The VA also provides specialists who can talk to the lender on the veteran’s behalf and give advice to the mortgage-holder on ways to avoid foreclosure.
Can You Buy a Foreclosed VA Loan-Financed House?
Even with help and advice, however, some VA loan-financed houses do fall behind in foreclosure and are eventually sold at auction.
Once they do, they can be purchased by anyone, veteran and non-veteran alike. For veterans and military families, purchasing an auctioned home can be a very good financial decision, for two reasons. First, the houses are frequently sold at below-market prices. Second, you can get a VA loan to buy the foreclosed house.
Auctioned homes are sold through the same multi-listing system (MLS) as other homes, through national networks of realtors. To find a VA loan-financed house that is foreclosed, ask to speak to the agent directly and request these homes.
Mortgage applicants with poor credit ratings or a personal bankruptcy within five years are often denied the mortgage. However, people with poor credit or recent bankruptcies can get them through the VA.
The Advantages of VA Loans
VA loans offer many advantages to veterans and military families. The terms may be much more favorable and no down payment is required. If you are facing foreclosure, they have programs and specialists to help. If you are looking for a home that has been repossessed by the bank, they may be selling for less than the market price, and obtaining a VA loan for them can be a good financial decision.