By Joe Nelson — Retired Air Force, Nelson Home Group Team Leader and Mortgage Loan Originator
A bankruptcy or a foreclosure in your history does not by itself disqualify you from a VA loan, and VA says so in plain language in its own underwriting guidance. What VA publishes instead of a credit score cutoff is seasoning guidance: how much time has to pass and what you need to show in the meantime. The one thing that changes the math completely is whether the loan that went bad was a VA loan, because that touches your entitlement.
The rest of the eligibility picture is on our veterans hub, and this page covers the credit history side of it.
Does the VA set a minimum credit score?
No. Chapter 4 of the VA Lender’s Handbook 26-7 states directly that VA does not have a minimum credit score requirement, and VA’s own Credit Standards Course puts it the same way, that VA does not use credit scoring and the underwriter should review the credit of each veteran individually. VA’s quick reference for real estate professionals says it about as bluntly as a federal agency can: VA does not require a minimum credit score, however the lender may set a credit score limit.
What VA requires instead is a judgment call by a human underwriter. The standard is whether the borrower is a satisfactory credit risk based on a careful analysis of the credit report and other credit data, with emphasis on overall payment patterns rather than isolated occurrences of unsatisfactory repayment. VA also instructs underwriters to use good judgment and flexibility, since not every circumstance is covered in writing. That flexibility is real, and it is why a well documented file beats a thin one.
How long after a Chapter 7 bankruptcy can you use a VA loan?
If the Chapter 7 was discharged more than two years before the date of closing, VA says it may be disregarded. Inside one to two years, VA says it is probably not possible to call the borrower a satisfactory credit risk unless two things are both true: the borrower obtained consumer credit after the bankruptcy and has made those payments satisfactorily over a continued period, and the bankruptcy was caused by verified circumstances beyond the borrower’s control, such as unemployment, prolonged strikes or medical bills not covered by insurance. VA states flatly that divorce is not generally viewed as beyond the borrower’s control.
If the discharge happened within the past 12 months, VA says it will generally not be possible to determine that the borrower is a satisfactory credit risk. A separate path exists when the bankruptcy came from the failure of a self employed borrower’s business, which VA will consider if the borrower took a permanent position afterward, there is no derogatory credit before the self employment or after the bankruptcy and the failure was not due to misconduct.
Can you get a VA loan during a Chapter 13?
Yes, and this is the part that surprises people. VA treats a Chapter 13 filing as an effort to pay creditors rather than a walk away, and its guidance says that if the borrower has satisfactorily made at least 12 months of the plan payments and the trustee or the bankruptcy judge approves the new credit, the lender may give favorable consideration. If the borrower finished all the plan payments, the lender may conclude that satisfactory credit has been re-established.
Two practical notes. The trustee or court approval is not optional and it takes time, so start that request before you write offers. And the plan payment still has to work inside your debt and income analysis, which is where VA’s residual income test does most of the real work. If you have not seen how that runs, read our explainer on VA residual income.
How long after a foreclosure or short sale do you have to wait?
VA says a foreclosure finalized more than two years from the date of closing may be disregarded, which is the same two year mark as a Chapter 7. Inside one to two years, it is probably not possible to call the borrower a satisfactory credit risk unless the borrower has obtained consumer credit since the foreclosure and paid it satisfactorily over a continued period, and the foreclosure was caused by verified circumstances beyond the borrower’s control.
A deed in lieu or a short sale is handled with more nuance. VA instructs the lender to develop complete information on the circumstances under which the borrower voluntarily surrendered the property, and says that if the payment history on the property was not affected before the short sale or deed in lieu and the borrower was voluntarily communicating with the servicer or holder, a waiting period from the date of transfer may not be necessary. That is a real opening for a service member who sold short during a permanent change of station while staying current. When one of these happened alongside a bankruptcy, VA uses the later of the discharge date or the transfer of title to start the clock on re-established credit.
What changes if the foreclosure was on a VA loan?
Everything, because entitlement is involved. VA states that if the foreclosure, deed in lieu or short sale was on a VA guaranteed loan, the borrower may not have full entitlement available for a new VA loan, and the lender has to confirm the Certificate of Eligibility shows enough entitlement to satisfy its secondary market requirements. Waiting out the seasoning period does not put the entitlement back by itself.
The harder rule sits behind that one. Where VA paid a claim to the lender, through foreclosure, a deed in lieu or a compromise claim, VA’s eligibility guidance says that even when the veteran’s debt was waived the government still suffered a loss, and the law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full. A veteran can be well past the seasoning period, have rebuilt excellent credit and still be working with partial entitlement, which is not the end of the road, since remaining entitlement can still support a loan, though a down payment may be required. Our pages on pulling your Certificate of Eligibility and restoring VA entitlement show how to see what you have.
What is CAIVRS and why can it stop a file?
CAIVRS is the Credit Alert Verification Reporting System, a HUD maintained database that tells participating lenders when a borrower has previously defaulted on a federally assisted loan, and an inquiry is required on every borrower and co-borrower on every VA loan, including interest rate reduction refinances. It pulls default information from VA, HUD, the Departments of Agriculture, Education and Justice, the Small Business Administration and the FDIC.
The VA entries that land in CAIVRS include claims paid on home loan foreclosures that resulted in a debt to the government, along with overpaid education and disability benefits. If a delinquent federal debt shows up, the lender has to verify it with the creditor agency, and the file will need either evidence the debt is paid in full or a current repayment plan acceptable to VA with a promissory note for the full balance. This item surfaces late more often than any other, so ask your lender to run it in week one.
How do you re-establish credit the way VA underwriting wants?
Outside of bankruptcy, VA considers satisfactory credit generally re-established after the borrower makes satisfactory payments for 12 months following the date the last derogatory item was satisfied. That same yardstick shows up across the guidance: 12 payments after a judgment, 12 months of timely payments after paying off debts that were not paid timely and 12 months of satisfactory payments in a consumer credit counseling plan with the agency’s approval of the new credit.
A few things work in your favor. VA tells lenders they may disregard all identifiable medical collections, including charge offs, that have not been reduced to a judgment or lien, and that those accounts need neither payoff nor explanation. Isolated non medical collections do not automatically have to be paid off either, though they count as open recent credit in the debt ratio and residual income calculation. Judgments must be paid in full or under a repayment plan with a history of timely payments. Absence of credit history is not generally an adverse factor, and nontraditional credit can document a payment record.
Why would one lender say no when VA’s own rules say yes?
Because the lender is applying its own overlay, and a denial from one lender is not a determination by the Department of Veterans Affairs. VA guarantees the loan, it does not make it, and lenders routinely layer credit score floors and seasoning periods on top of VA’s guidance to manage their own risk and their investors’ requirements. VA’s own material acknowledges this when it says VA does not require a minimum credit score, however the lender may set a credit score limit.
The practical consequence is that shopping matters far more after a bankruptcy or foreclosure than it does on a clean file. Ask each lender two questions up front: what credit score do you require on a VA purchase, and do you add any waiting period beyond VA’s own guidance. Our page on choosing a VA lender in Kansas City covers what else to ask. I am licensed as both a Realtor and a loan originator and cannot serve in both roles on the same transaction, so treat this as education rather than a pitch.
Who this applies to and who it does not
This applies to VA purchase and regular cash out refinance underwriting, which is where the credit analysis in Chapter 4 lives. Interest rate reduction refinances generally require no credit underwriting unless the loan is delinquent. It does not apply to whether you are eligible in the first place, which turns on service rather than credit, and it does not apply to non VA programs, which run their own seasoning tables.
The honest part is this. If your Chapter 7 discharged four months ago, no amount of lender shopping fixes that, and the answer for this year is to rebuild a payment record, keep the housing history clean and come back. If VA paid a loss on your prior VA loan and you have not repaid it, plan around partial entitlement rather than hoping an underwriter overlooks it, because the Certificate of Eligibility will show it. Neither is a permanent no. Both are a not yet with a defined path.
Frequently asked questions about VA loans after bankruptcy or foreclosure
Does a bankruptcy automatically disqualify me from a VA loan?
No. VA states that the fact a bankruptcy exists in a borrower’s or spouse’s credit history does not in itself disqualify the loan, and instructs the lender to develop complete information on the facts and circumstances, including the reasons for the bankruptcy and the type of filing.
Do I have to pay off collections to get a VA loan?
Not necessarily. VA tells lenders they may disregard identifiable medical collections and charge offs that have not been reduced to a judgment or lien, and that isolated non medical collections do not necessarily have to be paid off, though they count as open recent credit. Judgments must be paid in full or covered by a repayment plan with a history of timely payments.
When a foreclosure happened during a bankruptcy, which date starts the clock?
The later one. VA says that when a foreclosure, deed in lieu or short sale happens in conjunction with a bankruptcy, the lender uses the latest of either the bankruptcy discharge date or the transfer of title to establish the beginning date of re-established credit.
Can I get my entitlement back after a VA loan foreclosure?
Not until VA’s loss is repaid. VA’s eligibility guidance states that even where the veteran’s debt was waived, the government still suffered a loss, and the law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full. Remaining entitlement can still be used, often with a down payment.
Where can I see homes for sale and current prices in Kansas City?
You can search active listings on our Kansas City home search, and our featured communities pages carry current local market detail town by town across both states.
Ready to make the move?
Ready to make the move? Work with the top-rated team serving Kansas City veterans — or call us at 816-680-6624.
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Nelson Home Group is committed to the Fair Housing Act. We do not discriminate on the basis of race, color, national origin, religion, sex, familial status, or disability. School district and neighborhood information on this page is provided for factual informational purposes only and does not constitute a recommendation to purchase in any particular area. All buyers are encouraged to independently research neighborhoods, schools, and communities to determine the best fit for their individual needs.
Joe Nelson is a licensed Realtor in Missouri and Kansas, and a licensed mortgage originator in Missouri and Kansas (NMLS #2547018). Joe cannot serve as both Realtor and loan officer on the same transaction. This page is educational and is not an offer of credit or a commitment to lend. Loan products, rates and qualification are subject to underwriting and may change. Eligibility determinations are made by the U.S. Department of Veterans Affairs.