The United States experienced a housing bubble in the late 2000’s.  With the cost in house prices reaching a peak around 2006, many homeowners were faced with upside down mortgages in the following years.  This, coupled with job loss in a struggling economy, have forced millions of Americans to default on their loans whether it be from a credit card, mortgage, bank loan, or other.  Many people declared bankruptcy.  If they had a mortgage, many either sold their home through a short sale of their home, or walked away completely.

Bankruptcy

American veterans were not sheltered from this trouble. As the California economy continues to go through some tough times, some veterans are forced to go through bankruptcy protection.  Bankruptcy is when a person cannot pay his or her debt to their creditors. By declaring bankruptcy, relief is received through restructuring or cancellation of debt. Some debts are not released from responsibility such as spousal and/ or child support, student loans, and some taxes.

Out of the six Chapters of Bankruptcy one can declare, most individuals declare Chapter 7 which is a basic liquidation of property. This property can include any valuable collectibles, vacation homes, family heirloom, or a second vehicle. Any proceeds from the sale of this property would be used to pay off unsecured creditors. By declaring bankruptcy, many veterans can get back on their feet and re-establish their credit.

Short Sale

There are also thousands and thousands of VA eligible homeowners in California that have gone through a short sale in the past few years in California. Many property sellers experienced a “short sale” to sell their home because the sales price was lower than the mortgage loan balance they had on the property.  This is called a “short sale”.  The lender agrees to accept the new buyers’ price even though more is owed from when it was originally purchased.  When a borrower completes a short sale, the mortgage that was involved is most often reported on their credit as a derogatory item stating “settled for less than full balance”.   The way this former mortgage is reported to the credit bureaus alerts the VA underwriter to the fact the borrower applying for the VA loan had a previous short sale.

The benefit to the seller is that they do not have a foreclosure on their record.  In some cases, this obligation to repay any deficiencies of the loan is released, but they will still have a negative credit on their report. The benefit to the lender is avoiding foreclosure fees and costs. Lenders also avoid having a house sit empty on street. Lenders are not in the business of “owning a house”, and for the right customer, the lesser of the “two evils” is a short sale over a foreclosure.

Foreclosure

There are many veterans across the state of California who also lost their home to foreclosure in the past few years. A foreclosure is where the lender completely takes back (repossess) the house for payments not made.  When the homeowner defaults on their loan, the lender takes possession to the property.  The impact of a foreclosure is felt across the board. Beside it affecting a neighborhood with lowering property values, high foreclosure rates in cities experience higher crime and thefts.  Empty houses invite being broken into and also influence the visual esthetics of a neighborhood when there is no one to take care of the house.

If you are one of the millions of Veterans experiencing or have experienced a short sale, foreclosure, or bankruptcy, the dream of owning your own home is still possible. Many may want to take advantage of today’s low home prices in California and get a VA loan to buy a new residence.  You may already be eligible to use a VA home loan to buy once again with 100% financing. Getting your credit back on track is the key, but how does one go about doing so?