VA Loans After Foreclosure or Short Sale: How It Really Works

Many veterans are told they can never use a VA loan again if they had a foreclosure or short sale in the past. That’s not true. The VA loan program can still be used after these events. The real issue is unrestored entitlement—the part of your VA benefit that was lost and not returned. Understanding this rule helps you see exactly how much you can still borrow with $0 down. Need help running the numbers? Contact the JD.Mortgage team at PRMG.

VA Entitlement in Plain English

The VA doesn’t lend money. Instead, it guarantees part of your loan for the lender. This guarantee is called your entitlement. For 2025, the maximum loan amount set by FHFA in most counties is $806,500. The VA backs 25% of that amount, or $201,625. That means if your entitlement is fully available, the VA will guarantee loans up to $806,500 with no down payment required.

What Happens After a Foreclosure or Short Sale?

If you lose a VA-backed home through foreclosure or sell it short, the VA has to pay the lender part of the loss. That portion of your entitlement is then gone. It doesn’t reset unless the VA is repaid. This is called unrestored entitlement. You are still eligible for another VA loan, but your maximum $0 down amount is now lower.

Example: A $200,000 Loan Foreclosure

Let’s break this down with numbers. Say you bought a home years ago with a $200,000 VA loan. The VA guaranteed 25% of that loan, or $50,000. After foreclosure, that $50,000 is unrestored entitlement.

• Maximum entitlement in 2025 = $201,625
• Minus $50,000 lost = $151,625 remaining
• $151,625 x 4 = $605,500 maximum no-down loan

This means you can still use your VA loan with no down payment up to $605,500. If you want to borrow more, you’ll need to cover 25% of the difference as a down payment.

Buying Above the New Limit

Having reduced entitlement doesn’t mean you’re locked out of higher-priced homes. It just changes the rules. Here’s how:

• Max with $0 down = $605,500
• You want to buy for $700,000
• Difference = $94,500
• Down payment = 25% of $94,500 = $23,625

So even after foreclosure, you can still buy a $700,000 home. You just need a $23,625 down payment because of the reduced entitlement.

Short Sales Work the Same Way

A short sale happens when a home is sold for less than what is owed. When this happens with a VA loan, the VA covers part of the loss. That guarantee is not restored. The result is the same as foreclosure—your entitlement is reduced, but you are still eligible for another VA loan.

Key Points About VA Foreclosure and Short Sale

• A past foreclosure or short sale does not remove your VA eligibility.
• It does reduce your entitlement, lowering your maximum $0 down loan amount.
• You can still buy above that amount, but a down payment is required.
• The VA’s guarantee is always tied to 25% of the loan balance. Unrestored entitlement shrinks that amount.
• Full entitlement can only be restored if the VA’s loss is repaid in full.

Case Study: Short Sale With Reduced Entitlement

A veteran sells a VA-backed home for less than they owed. The VA covers $40,000 of the lender’s loss. That $40,000 is now unrestored entitlement. Today, in 2025:

• Maximum entitlement = $201,625
• Minus $40,000 lost = $161,625 remaining
• $161,625 x 4 = $646,500 maximum no-down loan

The veteran can still buy up to $646,500 with no down payment. Above that, they’ll need 25% of the difference in cash.

Waiting Periods

While VA does not block you from using your benefit after foreclosure or short sale, most lenders require a waiting period. In many cases, it’s 2 years from the foreclosure or short sale date before you can get a new VA loan. This is a lender guideline, not a permanent loss of eligibility.

FAQs: VA Loans After Foreclosure or Short Sale

1) Can I use a VA loan again after foreclosure?

Yes. Foreclosure reduces entitlement but does not end eligibility. You can still get a VA loan, with $0 down up to your remaining entitlement.

2) How does a short sale affect my entitlement?

A short sale works the same way as foreclosure. Whatever amount the VA had to cover is lost entitlement, reducing your no-down maximum.

3) How do I know how much entitlement I have left?

Your Certificate of Eligibility (COE) will show it. A lender can also calculate it for you based on your loan history.

4) Do I need a down payment after foreclosure?

Not always. If your remaining entitlement still covers the new loan amount, you can buy with $0 down. If not, you’ll need 25% of the difference as a down payment.

5) Can I restore my full entitlement?

Full entitlement can only be restored if the VA’s loss from the foreclosure or short sale is repaid in full.

6) Is the waiting period always 2 years?

Most lenders require 2 years, but some situations may vary. VA does not set a permanent ban.

Why It Matters to Work With Experts

Many lenders give veterans the wrong answer after a foreclosure or short sale. They say you’re not eligible, when in fact you just have reduced entitlement. The JD.Mortgage team at PRMG specializes in VA loans, including cases where entitlement is partially used. Licensed in 49 states (excluding NY), we’ll calculate your entitlement and show you how much you can borrow with $0 down—and how to structure any required down payment if you want a higher-priced home.