Make smart home loan decisions now to reduce the risk of foreclosure later

It’s not fun to cloud the happy thoughts of homeownership with the prospect of foreclosure.

But thinking through all the risks of taking out a purchase, refinance or home equity loan now can help you make the best long-term financial decision. This is especially true as you compare options available through the U.S. Department of Veterans Affairs (VA) with other government and commercial products.

In an initial blog on this subject, VA noted that if you’re a veteran, service member or family member of one, VA offers you these home loan choices:

• Eligible Native American veterans may seek a VA loan to buy, build or improve a home on federal trust land through the Native American Direct Loan (NADL) program.

• For all others, VA guarantees a portion of your loan, which helps banks and other lenders provide money at a lower cost toward the purchase or refinancing of your home. In the VA-backed home loan category, there are purchase loans, cash-out refinance loans and interest rate reduction refinance loans.

Enhance the home loan experience

VA provides these tips for enhancing the longevity of your home loan experience and ways to get help if you do fall behind on payments:

• Do your research. Review the various lending products on the market to find the best option and consider choosing VA, which often has the most competitive rates. Keep your antennae attuned to lenders offering overly optimistic terms such as extremely low interest rates with unspecified terms, high amounts of cash back and other aggressive sales tactics and products.

• Assess your ability to pay. The VA home loan program is there to get you into a home, not get you into debt. Experts at the Consumer Financial Protection Bureau recommend maintaining a 43% debt-to-income ratio. Figure this out by dividing your monthly debt by your gross monthly income and make sure you can still pay back the money you plan to borrow, especially if your or your family’s economic situation were to change.

• Consider your financial objectives. Assess your ability to pay your loan along with your overall financial objectives and life goals. Is your monthly payment going prevent you from taking a vacation or saving enough for retirement? Know what you want to spend — and save — each month and stick to that budget as you search for homes. By staying within your home-purchase budget now, you limit the possibility of getting under water later.

• Get counseling. As we saw with the Great Recession of 2007-2009, and are seeing now with the COVID-19 crisis, economic and other shocks occur. These can impact our employment situations and thus our ability to pay our mortgages. In such cases, VA offers the following support:
̶ Technical assistance. Anyone with a VA-direct or -backed loan can get financial counseling to avoid foreclosure through VA. Contact VA to be assigned a VA technician to your loan. These technicians work with your servicers or with you directly if you have a NADL to avoid foreclosure.
̶ Automatic assistance. If a VA-direct or -backed loan is 61 days past due, VA automatically assigns you a VA loan technician.
̶ Non-VA-loan assistance. Veterans or surviving spouses of a service member or veteran can also get foreclosure-avoidance help for non-VA loans at risk of default.

• Assess your options. Review with technicians and lenders the best plan to avoid foreclosure for your situation. Options include establishing repayment plans, getting extra time to pay, modifying the loan and establishing a new payment schedule, selling your home in a short sale and signing over the deed back to the lender.

• Know your rights as a service member. If you’re called to active duty, the Servicemembers Civil Relief Act may provide further protection from foreclosure by postponing, suspending or lessening your debt obligation. Review the information on this law at the Consumer Financial Protection Bureau’s website, http://www.consumerfinance.gov.

Learn more

• Contact a VA loan technician at [login to see] .

• Visit this page if you have trouble making payments, https://www.va.gov/housing-assistance/home-loans/trouble-making-payments.

• Check out the Consumer Financial Protection Bureau website’s “Servicemembers & Veterans” pages for consumer advice on mortgages and other financial products.