How to Qualify for a VA Loan Refund

When you have a loan guaranty on your mortgage through the Department of Veterans Affairs, the VA has legally agreed to supply a loan refund to the lender if you can no longer afford to pay your debt. While this legal agreement exists between the lender and the VA, it is very rarely exercised. In most cases, the VA will encourage the lender to arrange for the loan to be repaid through other means, including refinancing the loan or offering a loan workout. Only when no other method is possible to allow you to stay in the home will the VA consider a refund.

Financial Requirements

The first step to qualifying for a VA loan refund is meeting the financial requirements set by the lender and the VA. The lender must determine there is absolutely no way for you to qualify for a loan workout due to your current financial situation. This determination is only made in extreme scenarios where you have undergone a large emergency or extreme financial burden. For example, suffering from an extended illness rendering you incapable from working would be a valid reason for you to be unable to repay your debts.

Personal Requirements

The lender will not workout a loan agreement with you because you cannot prove your ability to repay the debt in the immediate future. The VA, however, is willing to look slightly longer-term. If you can show you will be able to repay your loan in the near future, the VA may help keep you in the home immediately. For example, if your illness prevented you from earning an income, you may have multiple debts that need immediate attention. The lender sees you as a large foreclosure liability. The VA, though, will consider the fact you have returned to work and are earning an income as potential proof you will be able to make your loan payments at some point in the future.

Loan Documents

If you believe you qualify under these strict requirements, start by supplying an application to the VA for a full loan refund. Your lender will have to prepare these documents on your behalf. The lender will provide your original loan contract, the loan guaranty agreement from the VA, statements of your delinquency, and proof it has attempted to workout the loan but cannot due so given the current circumstances. You will supply proof your hardship no longer affects your financial situation to show you can begin making payments to the VA in the future.

Other Considerations

Once you default on a VA loan and need to use your loan refund, the VA will be far less likely to consider you credit worthy in the future. This can compromise your ability to get future loans. It is best to avoid default through personal means rather than relying on the refund. Further, if you cannot pay your mortgage and do not feel you will be able to do so even after the refund, it may be in your best interest to allow the home to go into foreclosure. 

blog comments powered by Disqus