Can You Buy A Foreclosure With A VA Loan?

It’s an unfortunate fact of life that some home loans go into default and foreclosure. Mortgage loans guaranteed by the VA home loan program are no exception. Statistically speaking a certain percentage of home loan borrowers will default on the mortgage and eventually wind up going through the foreclosure process.

When a home purchased with a VA mortgage is foreclosed upon, the VA must pay the lender the amount of the VA loan guaranty, and instead of the bank owning the property, the house becomes the property of the VA.

And naturally, at the end of the foreclosure process the Department of Veterans Affairs winds up with a home it must add to an inventory of houses it maintains and offers for sale–the foreclosed home becomes known as a Real Estate Owned home, or REO for short.

The Department of Veterans Affairs has no interest in handing onto these properties. Instead, they go up for sale via the VA Vendee Loan program which allows those eligible for VA mortgages and others to apply for a mortgage to purchase a foreclosed home. VA Vendee Loans are not specifically VA mortgages, though you can use a VA home loan to buy such properties if they meet VA requirements (see below).

Who Is Eligible To Purchase A VA REO Home?

The VA REO program is not limited to those who qualify for the VA home loan benefit. Nor is the program restriction to owner-occupiers. The list of those who may apply to purchase a VA REO home includes:

• Veterans
• Non-Veterans
• Owner-Occupiers
• Investors

What makes the VA Vendee Loan Program unique among mortgage loan options is that it offers buyers of these VA-repossessed homes, “a unique seller financing loan product that is competitive and affordable” and Vendee financing is described as “a viable alternative” to traditional mortgage financing.

Where To Find VA REO Homes

Unlike shopping for a typical suburban home, condo unit, mobile home, town house or other property types, VA REO homes are not necessarily available in all housing markets. You can search for VA REO properties near you or elsewhere by looking at the official site which features listings for REO homes currently for sale. The link takes you to VRM Properties, not the Department of Veterans Affairs.

Using A VA Mortgage To Purchase A Foreclosure

It is possible to use a VA mortgage to purchase VA REO properties, but there are restrictions–the home you are purchasing must be considered move-in ready by the Department of Veterans Affairs, and you may need to consult the VA to determine what constitutes move-in ready in your area.

Because there are Vendee Financing loan options available from the official site which operates in partnership with the Department of Veterans Affairs, (VRM Mortgage Services) you may wish to consider a non-VA mortgage loan to purchase a VA REO home. Why? Because the VRM loans come with similar terms and conditions to VA mortgages including the following:

• Financing offered with “little to no money down”
• 15 or 30-year loan terms
• Competitive interest rate
• Seller may contribute toward closing costs
• No penalties for early payoff
• No mortgage insurance (PMI) required

For such loans, qualified borrowers have the option to finance origination fees and loan funding fees. These homes have no appraisal requirement, but if you are using a VA mortgage to purchase instead of the other VRM mortgage options, VA loan rules state the home must be move-in ready.

 It is crucial to remember that such properties may be sold “as-is” and “in-place” which means the property is not guaranteed to be defect-free.

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News