If you currently have a VA loan, you may be able to refinance it with very few steps. The VA Streamline Refinance is for borrowers who want to lower their payment. There are no bells and whistles involved with this loan. You can’t take cash out of your equity. All you can do is lower the interest rate. If you have an ARM, you can refinance into a fixed rate. If you want to shorten the term, you may be eligible. It depends on how much your payment changes. If it increases more than 20%, you can’t use the streamline program. You’d have to verify everything in a cash-out refinance. That being said, here’s what you need to do.
Shop for a Lender
You don’t have to use your current VA lender. You can use any VA approved lender. In fact, we encourage you to shop around. Look for lenders with not only low interest rates, but also fair closing costs. A low interest rate doesn’t do you any good if you pay tons of points and fees. The loan costs you more in the long run this way. Look for the lender offering a good balance between the two.
If you choose your current lender, that’s fine too. You may even shave a few dollars off your closing fees by doing so. Sometimes the title company can do a title update rather than a full search. This could save you some money. The lender may also not charge you a high processing fee since they already know your loan file. It never hurts to ask.
Apply for the VA Streamline Loan
Next, you must apply for the VA Streamline Loan. This is similar to the process you went through with your original loan. You have to let a lender know you want to refinance. You must disclose all of your information on the application. This includes your employer, income, and debts. Even though the lender doesn’t verify the information, you still need to show them. Many lenders will verify your employment even though you don’t need to verify your income.
When you apply for the VA Streamline loan, the lender will need to verify your eligibility. If you have a current VA case number, that’s all you need. The lender can take it from there. If you happen to have your Certificate of Entitlement handy, you can give it to the lender. This shows that you had previous entitlement. This gives you access to the streamline program.
Negotiate the Rate and Closing Costs
The VA Streamline loan requires that you have a benefit for the loan. Usually, this means a lower payment. The more you negotiate the interest rate, the lower your payment gets. Closing costs don’t have a bearing on your approval, unless you can’t afford them. Lenders must verify the money you use to pay the closing costs. They do so with your last 2 months’ bank statements. If you roll the costs into your loan, you want the costs to be as low as possible. This way you see the benefit of refinancing right away. Negotiating may take some time. Sometimes you may negotiate with your current lender. Other times it isn’t worth it and you do better shopping around.
Go Through Underwriting
Once you choose a lender, you must get through underwriting. Because there isn’t much to verify, this process goes quickly. Depending on the lender you choose, you may only have to verify the bare minimum. This means showing that you paid your mortgage payments on time for the last 12 months. That’s all the VA requires. Some lenders, however, have overlays. They may ask for things like:
- Credit report
- Automatic valuation on your home
- Proof of income
- Proof of assets
The amount of documents your lender asks for determines how long the process takes.
Get the Title Work Done
Title work must be done on every loan. It is the only way lenders know the home is free of liens. If there was a lien that got overlooked, it would take first position. If you defaulted on the loan in the future, the 1st lien gets access to the proceeds first. This could leave the mortgage company with even less money than they would have received fi they had first lien position.
The Final Steps: Closing on the Loan
Of all the steps in the VA Streamline program, closing is the most exciting. This is when you see your lower payment on paper. It’s when you start saving money too. Even if you paid closing costs, you will pay them off eventually. With your lower payment, you get closer to your break-even point with every payment you make.
Once you close on your loan, the old VA loan gets paid off. You now have a new VA loan with a lower rate. This may help you pay your loan down faster, giving you equity in the home faster with each payment you make.
The VA Streamline refinance should be a simple process for you to go through. Many lenders just use the VA’s guidelines. Others may have overlays. Continue to shop around until you find the loan that works the best for you. The loan with the lowest closing costs and lowest interest rate will save you the most in the long run.
The VA Streamline Loan is a great way to secure a lower payment and pay less interest. Even if you have to wrap the closing costs into your loan, it can benefit you in the long run. Shop around and find the deal that is best for you and then enjoy your savings on your new loan.