The VA Streamline Refinance is a fantastic program that allows you to refinance with very little work or cost to you. The goal of the streamline refi, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is to give you a lower rate and make your loan more affordable – that’s it! It can be used to lower a fixed rate mortgage or to refinance from an adjustable rate mortgage into a fixed rate mortgage as that is considered a more stable/more affordable program.
How to Qualify
As you likely know, you can only use your entitlement benefits once or once at a time. Meaning that if you used them on this house, you cannot use the benefit again unless you sold the house you were in and then bought a new house. In the case of the VA Streamline Refinance, however, you are just reusing your benefit, which is perfectly allowed. The entitlement must be used on the same property and you must be refinancing from a VA loan into another VA loan in order for it to work though. Proving that you are eligible for this program is very simple. You simply provide the original Certificate of Entitlement used to purchase the home – you do not need to furnish a new certificate since it is being used on the same home. The catch is that the funds from the refinance cannot be used for any other loans. This means if you have a 2nd mortgage on the property, that mortgage will have to agree to continue to be subordinate in order for the refinance to go through.
Loan Profile Requirements
As with any loan, there are certain loan profile requirements you must meet for the IRRRL, but they are fairly simple and easy to qualify for in the end.
- Appraisal – The original appraisal used when you purchased the property is what is used for the VA Streamline Refinance. This saves you the cost of the appraisal as well as the time it takes to process the loan waiting for the appraisal to be completed.
- Credit – Your credit score does not matter for this loan; however, the lender will pull your credit to look at your history. You cannot have any late payments reporting on the credit report in the last 12 months. In essence, the credit history is evaluated, but not the credit score.
- Employment – The lender will not verify your income as long as you meet the requirements for the loan’s interest rate changes.
- Income – The lender will not verify or evaluate your income; the income used for your original application is what is used for the refinance.
- Occupancy – The occupancy requirements for the IRRRL are a bit different than the original purchase of the home. With a VA purchase, you must prove that this home is your primary residence. For a VA Streamline Refinance, however, you do not need to be occupying the property. You simply have to provide proof that you did occupy the property when you first obtained the mortgage, but have since moved on.
- Cash out – There is no cash out allowed on the streamline program; however, you can roll your closing costs, funding fee, and interest costs into the loan amount. No amount of cash can come back to the borrower though.
The largest requirement for the VA Streamline Refinance loan is the lower interest rate that is required. As the name suggests, the loan is meant to reduce your costs by lowering the interest rate. The idea is to make the home more affordable and provide you with a higher level of residual income, which is a main focus of the VA’s requirements. By lowering your interest rate, your payment will decrease and you will have more disposable income to pay for everyday living expenses or to put towards your savings. The only exception to this rule is if you are refinancing from an adjustable rate mortgage to a fixed rate mortgage. In some cases, the interest rate will actually be higher with a fixed rate, especially if you were still in the introductory period of the ARM. Because the fixed rate mortgage is determined to be more stable than an adjustable rate mortgage, the VA allows a higher interest rate in exchange for the stability of the loan.
Each of these guidelines are per the VA – they may or may not be followed by a lender, however. Some lenders choose to require their own regulations as they are the entity that is providing the funds; the VA simply guarantees the loan. The VA will approve any loan that meets the above requirements, but certain lenders may not; they may require certain things to make sure the loan is rock solid. A few examples of what lenders may require include:
- Appraisal – In the wake of declining values, many lenders are requiring appraisals to ensure that the value of the home did not fall so much that the borrower is now upside down on his mortgage. Some lenders require appraisals in areas where there is reason to be concerned about the condition of the home.
- Employment – Some lenders want to confirm that a borrower is in fact still employed, especially in today’s volatile market. They want verification from the employer himself that the borrower is gainfully making an income and can afford the payments.
- Income – Some lenders will also require the verification of income to ensure that the debt ratio is not out of the ordinary or to make sure the income did not drastically decrease since the purchase of the home.
The VA Streamline Refinance loan is a great program for borrowers that have a higher interest rate and need to save some money every month. If one lender turns you down or requires things you do not want to provide, shop around with other lenders – there are thousands of lenders out there that offer the refinance program for the VA.
