The VA Streamline Refinance allows you to refinance your VA loan with very little work involved. You do not need a new appraisal or to verify your credit. You also do not have to disclose your income. Because of the very little verification required, the VA has strict requirements regarding your mortgage history. If you have too many late payments, you will not qualify for the loan. This is the only major requirement for the VA Streamline Loan.
Looking at Your Mortgage History
Your mortgage history shows lenders your financial responsibility. If you have late payments on your credit report, you show that you are not financially responsible. If this is the case, you may not be eligible for a VA Streamline Refinance. So how many lates are too many? We break it down here.
Technically, you should not have any late mortgage payments within the last 12 months. This is the ideal situation. However, this is not always the case. The good news is the VA does provide a small bit of flexibility. If you have only one late payment within the last 12 months on your mortgage, you may still be eligible. However, there is a timeline you must follow. If your late payment was within the last 3 months you will not be eligible. However, if it was say 6 months ago, you may qualify.
It makes sense why the VA requires no late payments on your mortgage history for the last 12 months. Why would a lender provide you with new money if you cannot afford your current mortgage? The VA’s focus on the mortgage history has helped them have the lowest default rate in the mortgage industry.
Other VA Streamline Refinance Requirements
In addition to the timely mortgage payments, the VA does have a few other requirements for this loan program:
- You must currently hold a VA loan in good standing
- You must have a benefit for the refinance. The most common is a lower payment. If your payment is not lower, but you refinance from an ARM to a fixed rate, this qualifies as a benefit.
- You must prove you lived in the property up until the date of application for the Streamline Refinance. You do not have to live in the property moving forward. This is a great option for borrowers who recently got transferred.
Refinancing While Underwater
Perhaps one of the largest benefits of this loan is the ability to refinance while you are underwater. This means you owe more on the home than the home is worth. If you were to sell the home today, you would not make enough money to pay off the full balance of your mortgage. This is not a good situation to be in and is often a deal breaker for a refinance. The VA Streamline loan allows this, though, because there is no appraisal needed. The lender can use the original appraised value of the property from when you purchased it.
Lender Overlays Make it Harder
Just like the standard VA loan, the VA does not fund the Streamline Loan program. The lender you use funds the loan. Because the lender is the one taking the risk, they can add more requirements onto the loan. For example, they may require that they pull your credit even though the VA does not require it. Other examples may include the lender requiring a Verification of Employment or proof of your income. If the lender has a reason to be suspicious of your financial situation, they may request additional information to make sure you are a good risk.
Fixing Late Payments
If you do have late payments showing up on your credit report, there are ways you can fix it. Of course, the easiest way is with time. Because the VA Streamline Refinance loan requires a period of 12 months with no more than one late payment, you can just wait it out. If this is not an option, do what you can to bring the loan current. At the very least, you must wait until the last 3 months are free from late payments.
In some cases, late payments show up on your credit report that are not accurate. If you find this is the case, you can appeal the report with the credit bureau. You will need to provide them with proof of the timely payments, though. The sooner you do this, the faster your credit will improve and the quicker you will be able to secure a VA refinance loan.
The Funding Fee
The VA Streamline Refinance allows you to refinance into a lower rate without very much verification. Keep in mind, though, you will have to pay the funding fee again. No loan comes for free and government-backed loans are no exception. The funding fee you pay helps keep the government-backed loans available for borrowers.
Should you have late payments reporting on your credit report, it is to your benefit to fix them. The VA Streamline Refinance could help you lower your payment. This has many benefits to it. Of course, the lower payment means you save money every month. Taking it a step further though, if you take those savings and apply them towards the principal of your loan, you will pay your loan down faster. In the end, this means less interest since you will pay the loan off faster.