The VA IRRRL is a benefit just for veterans with a current VA loan. If you want to refinance your loan to get a lower rate, lower payment, or better term, you can do so with very little verification on your part.
Many veterans are able to refinance despite having a lower credit score now or losing value in their home. But what about those veterans that are behind on their child support payments? Will the VA catch this and render you ineligible for the VA IRRRL program?
The Lender May Find Out
If we look at the technical aspect of the VA IRRRL program, lenders might not find out about the unpaid child support. Unless your ex-spouse filed a lien against your property, the lender wouldn’t know that you haven’t made your child support payments on time. The basic VA IRRRL requirements don’t require a lender to pull your credit or verify your income/debts. It does require lenders to pay for a title search, though. If your ex-spouse did file a lien, the lender will know about the unpaid child support.
Just because the VA doesn’t require lenders to pull your credit, though, doesn’t mean that they won’t. In fact, most lenders do still pull your credit to make sure that you are a good risk. They don’t want to rely on your mortgage payment history because it’s not a good enough indication of your ability to pay your loans. What if you have late installment loan payments or unpaid child support? Lenders want to know these things.
You Should be Upfront With the Lender
The best practice to use is to let a lender know the situation. While they might or might not find out about the unpaid child support, it’s best if they hear it from you. If the lender approves you for the loan and goes through the process of ordering your title work only to find out about the unpaid child support, it could cause them to cancel your loan altogether.
Let a lender know your situation and ask how they can help you fix it. Of course, if you can just pay the debt off in full, do it. Then just make sure that you keep the proof of your payment to ensure that you are able to get your VA IRRRL.
If you can’t pay it in full, your lender may suggest that you get a payment arrangement. This arrangement must be in writing and be official (court ordered). The lender will then use the payment in your debt ratio calculation to make sure that you can afford both the child support and the new loan. Most lenders will also require that you supply proof of timely payments. Many lenders require you to wait as long as six months to prove that you can make your payments on time.
Watch Your Other Debts
Once a lender knows that you are behind on your child support, they will likely want to evaluate your debt ratio even further. In other words, they will likely pull your credit report and calculate your debt ratio. They may base it on the income used for the purchase loan or they may even ask for proof of your current income. This way they can make sure that your DTI isn’t higher than 41% and that you have enough disposable income. This ensures that you have the money to cover your debts as well as the money to cover the daily cost of living.
The Strongest Factors
You should know that the two strongest factors VA lenders need in order to qualify you for the VA IRRRL are a strong mortgage payment history and a net tangible benefit for the refinance. The other details are up to lender discretion. If you find one lender that won’t refinance your loan because of your unpaid child support or higher DTI, shop around with other lenders. Each lender can have their own requirements beyond the mortgage payment history and net tangible benefit. Some are easier than others, so shop around until you find the loan that is right for you.
Unpaid child support is something that you should take care of in order to get your VA IRRRL, but it’s not always the reason you don’t get approved. If you don’t have the means to pay your back child support in full, at the very least, get a payment arrangement and make good on the debt so that you can get your VA approval for the refinance when you need it.