Can You Buy a Foreclosure With a VA Loan?

By Bill Lyons | Published on May 10, 2023

Foreclosures often allow buyers to purchase a home under its current market value. Since lenders and banks don’t want to hold onto foreclosed properties, they’re typically motivated to sell, giving buyers more bargaining power. 

Of course, foreclosed homes may need repairs because they’re often sold as-is. However, it might be well worth it to save on your mortgage payments or put some of your loan amount toward fixing up the home. If you’re eligible for a VA loan, you probably already know that the VA and lender have various requirements you must meet before your loan application is accepted. 

So can you buy a foreclosure home with a VA loan? You absolutely can, as long as it meets the VA’s minimum property requirements (MPRs) and you’re eligible for the loan. Keep reading to learn more about buying a foreclosure with a home loan to decide if it’s the right option for you. 

What Are Foreclosure Properties?

A foreclosure occurs when the lender seizes the property because the borrower didn’t pay off their mortgage and defaulted on the loan. If a home is foreclosed, it’s owned by the lender or bank that provided the mortgage loan. Mortgage loans are collateral-based, so the mortgage puts a lien on the property, and if you fail to pay your mortgage payments, lenders can seize it from you. 

Lenders have to go through a daunting process for foreclosure homes, which includes notifying the homeowner after missed payments and loan default. Next, the lender evicts the homeowner and has to publish that the property will be for sale in a local paper before selling the property at a public auction. If the home doesn’t sell, the lender becomes the homeowner, and they can continue to attempt to sell it. If you’re purchasing a home with a VA loan, you’re probably buying it after it didn’t sell at the public auction. However, it’s possible to purchase it at a public auction if you’re aware of it. 

At first, purchasing a foreclosed home may not seem ideal because it’s unlikely the homeowner put any work into it since they couldn’t afford their mortgage payments. However, the benefit of this is that you can save money on your home purchase. 

Can I Purchase a Foreclosure With a VA Loan?

You can buy a foreclosure home with a VA loan, but the home must meet the VA’s minimum property requirements and you must be eligible for the VA loan. You must meet various lenders and VA requirements, such as the VA’s minimum service requirement to ensure you’re eligible for the loan, and the lender’s specific requirements, such as minimum credit score, debt-to-income (DTI) ratio, and income requirements. 

VA Minimum Property Requirements

It’s more complicated to purchase a foreclosure with a VA loan than conventional and Non-QM loans because of the VA’s minimum property requirements (MPRs). These requirements ensure that the home you purchase is safe and structurally sound. A few key requirements include the following:

• Residential zoning
• No major roof repairs requirement
• Heating, plumbing, and electrical are in working order
• No lead-based paint
• Free of pests like termites
• Accessible from public and private streets
• Sufficient living space depending on family size

Unfortunately, the VA can determine your eligibility for the VA loan, but these particular requirements still must be met in order to qualify. This is a common problem because foreclosure properties are sold as-is, so there’s no homeowner seller to fix the problems to help you get approved. Instead, the lender or bank owner probably doesn’t want to have to spend money on the property. 

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Pros and Cons of Buying a Foreclosure With a VA Loan

As we’ve mentioned, buying a foreclosure with a VA loan can help you save money. A foreclosed home is typically available at a lower selling price than comparable homes in the area, which can help you make the most out of your VA loan. In addition, because VA loans come with the benefit of a zero percent down payment, competitive VA loan rates, and more flexible lending requirements, you can combine the advantages of purchasing a foreclosure and using a VA loan. 

Other homes on the market are usually renovated before you buy them, but since foreclosed properties are sold in as-is condition, you can use the remaining part of your loan to repair and renovate the home however you like. While this is seen as a con to some, others prefer having a home where they can start fresh and renovate it the way they want it. 

Additionally, purchasing a foreclosure with a VA loan can offer a higher return on your investment. Since you purchased a home for much less than others in the area, you can resell it and increase your return once you’ve made repairs and renovations to increase its value. 

Unfortunately, buying a foreclosure with a VA loan isn’t right for all borrowers, and the VA’s requirements can make it challenging to secure a VA loan for these types of homes. Even if the home meets the minimum property requirements, there are risks associated with buying a foreclosed property. 

Buying a property in as-is condition means it’s probably been neglected for some time. The previous owner couldn’t keep up with their mortgage payments, so they probably couldn’t invest too much into the home. Some foreclosures require significant repairs that can cost more money. 

How to Buy a Foreclosure With a VA Loan

So can you buy a foreclosure with a VA loan? Yes, but the process is more complicated than using another home loan type. For example, there are several ways to purchase a foreclosed home: through a short sale, at auction, or through the lender. 

A short sale is when the homeowner who is behind on mortgage payments sells the home for much less than they owe on the mortgage. At this point, the foreclosure process hasn’t been completed, and the homeowner still owns the home. 

Once the foreclosure process is underway, you can purchase the home at auction, where you’ll agree to purchase the home as-is. If the home doesn’t sell at auction, you can purchase it directly from a lender. However, it’s worth noting that lenders rarely work directly with buyers. Instead, you’ll need to work with a real estate agent to purchase a foreclosure from the lender. 

Before you begin house hunting, you should get pre-approved for a mortgage to give you more purchasing power. Mortgage pre-approval can show lenders and banks that currently own the home that you’re a serious buyer. Then, once you’ve found the property you want to purchase, you can apply for a VA loan, which requires you to provide your Certificate of Eligibility (COE) from the VA. At this point, the VA will order an appraisal to determine if the property meets the minimum property requirements. 

Unfortunately, many foreclosed homes won’t meet the minimum property requirements because the previous homeowner didn’t keep up with the home’s maintenance. In addition, the VA won’t approve properties with significant damage or structural concerns in houses sold in as-is condition, making getting VA loans for a foreclosure more complicated. However, this isn’t true for all foreclosures. Some can pass the VA’s inspection, allowing you to purchase a home for less and with zero down payment. 

Don’t forget that your loan application will also go through a lender’s underwriting process, where they verify information like income and assets, DTI ratio, and credit score to determine your ability to repay the loan. 

Apply for a VA Loan Today

Can you buy a foreclosure with a VA loan? As long as the particular home meets the VA’s minimum property requirements and you, as the borrower, meet the VA’s minimum service and lender’s requirements, you can purchase a foreclosure. However, there are several things to consider, such as whether you’d want to purchase a home that requires repairs even though you’ll be purchasing it for less than comparable homes in the area. 

VA loans make purchasing a foreclosure home more complicated, but because these homes are typically more affordable, it can reduce the total loan amount required. Ready to purchase a home? Get a VA loan from Griffin Funding by applying online or contacting us to learn more about our offerings.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.