You can get quite a bargain on a foreclosed home in some situations. Did you know that you don’t have to buy a foreclosure with cash only? You can get financing, which includes VA financing.
Even though the VA has flexible guidelines, there are certain stipulations you will have to meet if you plan to buy a foreclosure.
The Home Must Pass the VA Appraisal
This is the toughest requirement when buying a foreclosure. The home has to pass the VA appraisal. This doesn’t mean that VA appraisals are tougher than any other appraisal. But it does mean that the VA wants to know that the home is in decent condition.
Sometimes when a home is a foreclosure, it means that it was neglected. This could have been out of spite because the owners were angry. It also could have been out of necessity. If the owners couldn’t keep up with the mortgage payments, chances are that they couldn’t keep up with the maintenance on the home either.
So what does the home need?
It must pass the VA Minimum Property Requirements, which include:
- The roof must have at least a few years left on it and not have any leaks or other defects
- All utilities must be in good working condition and have at least a few years of life left on them
- All windows must be sealed, not broken, and visually appealing (no cracks, broken glass, or peeling paint)
- The home cannot have any lead-based paint
- The home’s drinking water must be safe for consumption and use
- There should not be any mold in the home
- There should not be any pest damage
These are the basic MPRs that often affect foreclosed homes since they are so often in disrepair.
The Home Must be Worth Enough
Of course, just like any other home you buy with VA financing, it must be worth at least as much as you pay for the home. If the home is in an area where there was an influx of foreclosures, you may have a harder time getting the value you need.
Typically, banks try to get back as much as they lost on the home. If the owner only had the home for a few years, there probably isn’t much equity in the home and the bank will need to recoup the amount they lost. This could make it tougher to get VA financing, especially if you didn’t plan to make a down payment.
If the home is worth enough, though, the VA financing shouldn’t be an issue, even with no down payment. As long as you meet the other VA qualifying factors, you should have a good chance at approval.
Qualifying for a VA Loan
So what does it take to qualify for a VA loan? Luckily, the requirements are simple:
- 620 or higher credit score
- Maximum 43% debt ratio
- Eligibility for a VA loan with your Certificate of Eligibility
- Enough entitlement to secure the size loan that you need
- Stable income
- Stable employment
- No defaulted federal loans
The bottom line is that you can buy a foreclosure with a VA loan; you just have to make sure you meet all of the requirements. The largest hurdle is usually the home’s condition/value. Make sure you pay close attention to the home’s condition when you walk through it. Does it seem to be in decent condition? You’ll know if it’s not if you see leaky faucets, water spots on walls/ceilings, or missing tiles, or holes in the walls, as a few examples.
If everything looks good to your knowledge, it can be a good sign that you can buy a home with no down payment and for a low price!