Appraisal issues and VA loans often seem to go hand-in-hand. The VA has a direct say on whether a property fits the bill or not. The VA’s requirements tend to be stricter than any other loan program. They want veteran’s homes to be safe and sanitary. The VA actually has a list of things the appraiser must check to make sure the home passes their requirements. The good news, however, is you do not need an appraisal if you qualify for a VA Streamline Refinance.
Getting Around the Appraisal
The VA Streamline Refinance, known as the VA IRRRL, requires very little verification. The name stands for Interest Rate Reduction Refinance Loan and that is exactly what it does. The refinance provides you with a loan with a lower interest rate and/or payment. In order to qualify, you need:
- Proof of timely payments over the last 12 months on your current VA loan
- Proof that the new payment is lower than your current VA payment
- Proof of occupancy up until the date you request the refinance
- Proof of current employment, but not your income
This is all the VA requires lenders to verify for the VA IRRRL. What this means for you is any appraisal issues you may have would not be a concern. In fact, the value of your home may have decreased and you still qualify. Some borrowers are even upside down on their loan and still have the benefit of the refinance.
The VA allows the streamline program because it provides veterans with a lower payment. If you can prove you easily afforded the original VA payment, you will likely make the lower payment too. This decreases the VA’s risk for default and increases your monthly disposable income. It is a win-win situation for everyone.
Typical Appraisal Issues on a VA Loan
You might wonder what appraisal issues you could even have with a VA refinance. You secured the VA loan originally, so what is the problem? The fact of the matter is the VA is very strict with appraisals. They concern themselves with the safety of the home. If something is not “safe,” they will not provide funding. A few common examples include:
- Broken windows
- Non-working HVAC systems
- No access to certain areas, such as the attic or crawl space
- Loose railings in stairwells
These are just a few examples of things that prevent a VA appraisal from passing through. You must fix anything considered a safety hazard before the VA will provide funding. This is why the VA IRRRL is such a nice program. Not only do you get to save money on your mortgage payment, but you do not have to fix any issues the appraiser would notice.
Cash-Out Refinances are Different
Avoiding VA appraisal issues is only possible with the VA streamline program, though. If you need cash out of the equity of your home, you need a full VA loan. You will need to verify your income, assets, employment, and the value of your home. In this case, there is no getting around the appraisal. The lender must determine that there is enough value in the home in order to lend you more money than your current loan is worth.
If the appraiser finds issues with the home, you will need to fix them prior to closing on the loan. This includes any of the above issues discussed as well as hundreds of others. Anything you can see that would put someone’s safety at risk is likely a VA violation.
Refinancing with the VA IRRRL program helps you secure a lower rate and save money each month. If you know you want to take cash out of the equity of your home, though, plan ahead. Take a walk around your home and look at the issues you see. Fixing them prior to the appraisal can help save you some of the headaches the VA appraisal causes. If, however, if you just want a lower interest rate, consider the VA IRRRL. You avoid any appraisal issues and save money every month.