Knowing the VA’s seasoning requirements can help you decide what’s next after getting a VA loan. You aren’t stuck with the same loan for the entire term. But, the VA does have strict requirements when you can refinance. They also have requirements regarding when you can get another VA loan after losing your current home.
We break down all of the details here so you know where you stand with your VA loan.
What is Seasoning?
First, let’s look at the definition of seasoning. It’s the time you have owned the home. For example, if you bought your current home 24 months ago, you have 24 months of seasoning. However, it could also pertain to the time you’ve held a particular mortgage. In this case, it’s how long you’ve held your VA loan. Different situations require different lengths of time.
VA IRRRL Seasoning Requirements
One of the most popular VA programs is the VA IRRRL. The Interest Rate Reduction Refinance Loan allows veterans to refinance with very little work involved. They don’t have to verify income, assets, or a credit score. They don’t even have to pay for a new appraisal. In exchange, though, the VA wants to know that you have a perfect mortgage history. This is where the seasoning comes into play.
The VA lender wants at least 6 months of mortgage payments before they’ll refinance your loan. If you only wait 6 months, then you must have 6 consistent, on-time payments. If you wait 12 months, you are allowed to have one late payment during that time. The late payment must not be more than 30-days late, though. These requirements are a hard and fast rule set by the VA.
This gives the lender time to look at your mortgage history. They can determine if you can afford the current loan. If you struggle making those payments, a new lender may not want to take a risk on you. In some cases, though, it helps prevent house flipping. Even though VA loans are for owner occupied homes, there is one caveat.
The IRRRL program doesn’t require owner occupancy. Veterans can refinance their home and not live in it. If the VA didn’t have seasoning requirements in place, borrowers could use the VA loan to get a home with no down payment. They could then refinance it quickly, removing the need to live there. They can then either rent it out or sell it right away, making a profit. This is not the VA’s mission. They only provide loans for owner occupied properties, not investment properties.
Cash-Out Refinance Seasoning Requirements
The VA doesn’t have a hard and fast rule for the VA cash-out refinance. In this case, it’s up to the lender. It’s usually hard to find a lender willing to give you a cash-out refinance right away, though. Lenders hesitate for several reasons:
- The increased value could be temporary or inflated. If the lender gives you a higher loan on this amount and the home’s value decreases shortly afterwards, it could leave them with a big loss.
- There isn’t enough time to establish a positive payment history if the lender doesn’t wait 6-12 months. Since the cash-out refinance is for a larger loan amount, it’s a big risk for the lender. Waiting gives them time to make sure it’s a good risk.
Seasoning Requirements After Foreclosure
The VA does put their foot down regarding seasoning requirements after a foreclosure, though. Borrowers can’t apply for a VA loan until 2 years after the sale date of the home. This gives you time to pick up the pieces and repair your credit.
In the meantime, you’ll have to rent a home, but rent is often cheaper than a mortgage. If you do rent, make sure you make your payments on time. The VA lender will need a Verification of Rent that shows that you have made at least 12 rent payments on time.
This is also a time to fix your credit. You may have to start small, such as with a secured credit card or department store credit card. As you re-establish yourself as a good credit risk, more opportunities will come your way. Your credit score will steadily increase as you continually make your payments on time and don’t hold high balances on your credit cards.
Seasoning Requirements for a Short Sale
A short sale differs from a foreclosure. You don’t need to wait a specific period in this case. It’s up to the individual lender. If you get turned down by one lender, you can always apply with another one. VA lenders each have their own ideas of what they want to take on.
It helps if you have a valid reason for a short sale. Let’s say you lost your job and the value of your home decreased. You were underwater and couldn’t refinance to get a lower rate. This may serve as a valid reason to one or more VA lenders. Again, picking up the pieces and showing that you are back on track is the best way to get a lender’s approval.
Overall, the VA loan is one of the most lenient loans available today. As long as you have the appropriate service time in the military, you’ll be a good candidate for this program. It is one of the most forgiving when it comes to negative credit histories and negative economic events. Make sure you shop around with several lenders to find the one that offers the program that fits your needs the most.