No appraisal, no loan limit, and no closing costs. These are just some of the benefits afforded by the U.S. Department of Veterans Affairs Interest Rate Reduction Refinance Loan Program to its eligible homeowners. How about its credit requirement? Does the IRRRL program accept homeowners with not-so-great credit history and scores? Find out below.
IRRRL’s Credit Requirements
IRRRL states, “No appraisal or credit underwriting package is required when applying for an IRRRL.” But there are exceptions to the ‘no credit underwriting’ rule:
- If the loan to be refinanced is past due for 30 days or more. This is because the IRRRL program requires the mortgage to be refinanced to be current for the past 12 months.
- The monthly loan payment (principal, interest, taxes, and insurance) will increase to 20% or more.
Otherwise, the IRRRL program requires no credit check. Do note that these loans will be ultimately made by lenders who have varying underwriting guidelines on credit.
Lenders can require credit reports to check if you’ve been current on your mortgage obligations but would not consider credit scores. Still, other lenders set a minimum credit score of above 600 and require no bankruptcy within the past two years and outstanding collections and judgments. Be sure to ask lenders about their credit requirements on IRRRL loans.
Bad Credit Isn’t a Deal Breaker
So, yes, your bad credit won’t automatically mean your IRRRL application is denied. See it this way: your loan application will be evaluated based on a number of factors, credit just being one of them.
As one lender puts it, the credit standard of VA loans depends on a few factors, and if you’re able to show a satisfactory payment history with no late payments and a stable source of income, you can qualify. In the absence of credit scores, borrowers will be analyzed based on their payment history that should be deemed satisfactory.
For those who went through bankruptcy, they can be eligible for as long as debts were repaid and are able to prove that the bankruptcy filing is beyond their control.
Make Bad Credit Look Good
But, if you think your credit would be a major stumbling block to your IRRRL loan and want to increase your approval chances, you can improve your credit and raise your credit score, as well.
- Always check your credit report for mistakes. Any discrepancy can lower your credit score.
- Always pay your bills on time. Not just the IRRRL program, traditional credit requires that you have a solid repayment history on past debts.
- Always keep your credit card usage in check. Be on top of your credit card debt and pay off your balances every month.
- Always fix your issues. There’s no shortcut to getting your credit record cleaned and rebuilt. It requires patience and determination to see even the slightest uptick in your credit score but the results can be very rewarding.