The VA IRRRL offers the chance to lower your interest rate and/or payment on a VA loan. You can qualify without credit, income, or asset verification. You don’t even need an appraisal. Lenders can refinance borrowers based on their mortgage history alone. It’s one of the best refinance programs available today. Here we discuss the underwriting requirements for this program.
Credit Requirements
Generally, lenders don’t have to pull your credit score. Many will still pull it though. It gives them peace of mind that you are still financially responsible. The only time the VA requires lenders to know your score is when:
- Your VA loan is more than 30 days late
- Your mortgage payment will increase more than 20%
There is an exception regarding your mortgage payment. It can increase when you refinance out of an ARM or into a shorter term. An ARM usually has a lower fixed rate, especially if you refinance during the introductory period. A fixed rate doesn’t increase. You always know the payment. Lenders look at this type of loan as less risky. This is why they don’t care too much if the payment increases. However, a 20% increase is the maximum. Anything above that and the lender must verify your credit score, income, and debt ratio. They must make sure you can afford the loan.
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Mortgage History Requirements
The VA’s largest requirement pertains to your mortgage history. Over the last 12 months, you can’t have more than one late payment. This late payment also can’t exceed 30 days. If you recently had a late payment, it’s best to wait until it’s 12 months behind you. This gives you the best chance at approval as well as the best rate.
Lower Payment and/or Interest Rate
A general requirement of the VA IRRRL program is you must lower your interest rate or monthly payment. The VA doesn’t have a minimum amount your rate must increase. As long as it’s lower, you satisfy the condition.
A lower payment goes along with the lower interest rate. The VA requires your principal and interest to be lower than your current principal and interest. If your interest rate and principal decreases, you won’t have an issue. There are exceptions to the rule:
- If you refinance into another ARM, your payment may increase. As long as it’s less than 20%, it’s acceptable.
- If the new term is shorter than your current term, it’s acceptable. Again, though, your payment can’t increase more than 20%.
Occupancy Requirements
The VA IRRRL doesn’t have strict occupancy requirements. Unlike the original VA loan you took out, you don’t need to live in the home. What you do have to prove, though, is that you did live in the home prior to applying for the loan. Some borrowers refinance with the VA IRRRL to lower their mortgage payment. They then move elsewhere with another loan program. If they have any entitlement left, they may even use another VA loan. With the lower payment on their existing home, they can make a higher profit on the rent they charge on the home.
Maximum Loan Amount
The VA does set the limit to how much you can borrow. This is not a cash out refinance. You can only add a few things to the loan amount:
- Outstanding principal balance
- Any outstanding late fees or unpaid interest
- The new funding fee
- Closing costs
You can’t receive any cash in your hand. The loan is strictly to lower your interest rate and/or payment.
Signed Disclosure
Lastly, you must provide a document stating you understand the refinance. The VA wants reassurance that you understand the effect on your term, payments, and interest rate. Refinancing your loan may save you money, but it also starts your term over. By signing the disclosure, you acknowledge that you understand the affect and accept it.
What You Don’t Need for Underwriting
Unlike your original VA loan, you don’t need the following for a VA IRRRL
- Paystubs
- W-2s
- Tax returns
- Bank statements
- Appraisal
The good news is, you can even be underwater and still secure the loan. if you owe more than the home’s value, the lender wont’ know. Even if they do, the VA allows it. Some lenders may not accept it, though. You may have to shop around with different lenders if this is the case.
You Can use Any Lender
You aren’t stuck with your current lender if you use the VA IRRRL program. You can use any VA approved lender. It works to your benefit to shop around. Each lender has their own overlays. This means additional requirements they add onto the program. They also charge their own fees and interest rates. Shopping around allows you to find the loan that suits your needs the most.
The VA IRRRL underwriting requirements are rather simple. You don’t have to verify nearly as much as you did with the first VA loan. VA lenders are under the assumption that if you qualified for a VA loan originally, you’ll qualify now. Again, as long as you have timely payment history, this is the case. If you have too many late payments, this won’t happen. Instead, lenders will need to fully verify you for the loan. If you have late mortgage payments, chances are your credit score isn’t going to qualify you for any other loan program.
You can prepare for the VA IRRRL underwriting process by making your mortgage payments on time. Everything else falls into place, especially if interest rates fall. As long as you save money, the VA allows lenders to refinance your loan with little verification. Take advantage of this incredible program if you have a VA loan!
