How to Avoid a VA Loan Foreclosure

Very Few VA Loans Go Into Foreclosure

foreclosure house wrapped in foreclousre tape
••• © Big Stock Photo

There are no sure things in the mortgage industry. The only sure thing is if you make your mortgage payment, you stay. If you don't, you won't. But VA loans are about as close as borrowers can get to being somewhat protected against the possibility of default.

In the wake of the subprime mortgage meltdown, loans backed by the Department of Veterans Affairs continue to provide veterans with a secure way to finance a home purchase. These low-cost loans come with a rigorous yet flexible underwriting process that’s helped insulate veterans and their families from the ravages of default and foreclosure.  

VA Foreclosure Rates

In fact, VA loans have the lowest rate of foreclosure of any major loan product available, according to recent data from the Mortgage Bankers Association. Here’s a snapshot of foreclosure rates as of fourth quarter 2009:

  • Subprime loan foreclosures: 15.58%
  • FHA loan foreclosures: 3.57%
  • Prime loan foreclosures: 3.31%
  • VA loan foreclosures: 2.46%

Despite success in the face of foreclosure, VA loans and veterans haven’t been completely immune to the economic turmoil of the past two years. However, the Department of Veterans Affairs has worked proactively to keep veterans and active-duty service members from losing their homes.  

Avoiding Foreclosure of a VA Loan

The agency urges struggling veterans to immediately contact their lenders and to explore options to avoid foreclosure. Loan servicers may be able to provide veterans with one or more of the following options:

  • Loan forbearance
    Veterans can get extra time to repay obligation.
  • Loan modification
    Lenders roll the delinquent payments into the loan balance and start a new payment schedule.
  • Repayment regimen
    Veterans pay off a portion of the delinquent payments each month along with their regular amount.
  • Short Sale
    Lenders can allow veterans to sell their home for less than the homeowners owe.
  • Deed-in-Lieu of Foreclosure
    Instead of going through foreclosure, the veterans can deed the property over to the loan servicer. Most lenders would rather avoid the cost and headaches that come with trying to formally foreclose on a property.

    Help for VA Borrowers in Default

    Veterans who become delinquent on a VA home loan can utilize agency-provided servicing assistance to help resolve the problem. VA borrowers can also seek help from experts at one of eight Regional Loan Centers and two special servicing centers. To find the center nearest you, call 877-827-3702.

    Some veterans may also be able to qualify for default protection under the Servicemembers Civil Relief Act, or SCRA. Eligible veterans may receive a lower interest rate for up to one year and stave off foreclosure or eviction for up to nine months from their period of military service.  

    Veterans with Non-VA loans

    Obviously, the VA is limited in what it can do to intervene when veterans have mortgages that aren’t backed by the agency. Veterans may be able to refinance their existing conventional loan into a VA loan for up to 100 percent of the property’s value.

    Veterans can also turn to the HOPE NOW Alliance for help. This group of counselors, mortgage companies, and other experts provides outreach, counseling and assistance to homeowners who are struggling to stay afloat. Call 1-888-995-4673 or visit