The VA Streamline program is a simple way for current VA loan holders to refinance their loan. It is simple for current VA loan holders to qualify for and it saves them money every month. What more could you ask for? According to the VA, you only need to meet the following requirements:
- You VA home loan must be current on its payments
- You cannot have more than 1 late housing payment in the last year
- The interest rate you refinance into must be lower than your current interest rate
- Your payment (principal and interest) must be lower than your current payment (there are exceptions if you refinance from an adjustable rate to a fixed rate loan)
- A signed document acknowledging that you understand how refinancing your loan affects your future
As you can see, the are rather simple. The VA does not get very specific about credit scores or income – they simply want to help homeowners lower their payment so that they have more residual income each month and are able to pay their mortgage off faster. The key factor here, however, is what the lender thinks. There are not a large number of lenders that are willing to extend a new loan based solely on the facts stated above – they usually add their own overlays to make sure you really do qualify for the loan.
VA Streamline Lender Overlays
As stated above, every lender has their own idea of what they consider risky and what they want to verify to ensure that you are able to afford the loan. Typically, the following areas are the most common areas of concern:
- Home value – Many lenders are not comfortable providing a VA Streamline Refinance without an appraisal. They want to know that the value of the home has increased, rather than decreased, which can happen in the wake of the mortgage crisis. This is not to say that every streamline refinance will need an appraisal – typically lenders know which areas were hit the hardest and are having a hard time bouncing back in value. These are the areas where the lender will likely require a new appraisal
- Employment – Your employment plays a key factor in your risk level for a loan. If you submit your application and are at the same job you have been at for the last 10 years or so, chances are the lender is not going to verify your employment or income. On the other hand, if there are factors that make the lender second guess what you are doing for a living right now, they might require that you verify your employment and possibly your income. This is especially true if you recently changed jobs or industries as the lender needs to see how stable the job is in order to lend you money.
- Credit history – Sometimes lenders will see something that throws up a red flag, encouraging them to look at your credit history. A large majority of lenders pull your credit to see your score before giving you a new loan, even a streamline refinance, but some will dig deeper if your credit score dropped significantly. If you have a lower score, there is a reason and the lender will need to know what it is. Maybe you lost your job, got ill and couldn’t work, or just became financially irresponsible during that time. Whatever the case may be, the lender may dig a little deeper.
Do not look at lender overlays as a negative impression on yourself – they do it to protect themselves. Lenders are at risk when they lend you money because if you default on the loan, they have to figure out what to do to get their money back. A portion of the money is guaranteed by the USDA, which helps, but the lender is still at risk. If there is a lender that has a lot of lender overlays, you can always shop with other lenders if you do not want to go through the work of getting approved that way or you can muscle through the overlays and get the approval you know you are able to get.
