Are you worried that you won’t be able to refinance your VA loan because your home won’t appraise for enough? It’s a worry that many borrowers have, but with the VA loan, it is possible to refinance without an appraisal in some situations.
Keep reading to learn if you are one of the lucky ones that can refinance without an appraisal.
The VA Streamline Loan
The VA has a program that has two names – the VA streamline refinance or the VA Interest Rate Reduction Refinance Loan. They are one and the same. The goal of this loan program is to help you lower your interest rate and/or monthly payment. It can also help you get out of a risky loan term into a more stable one, such as refinancing an ARM into a fixed rate loan.
The beauty of this program is that you don’t need an appraisal. The VA allows lenders to use the original appraised value when you bought the home for the VA IRRRL program. This means that your home could have dropped in value and you can still refinance. That’s not the case for many other loan programs!
You also don’t need to provide proof of your credit score, income, or assets. The lender can use all of your qualifying information from your original loan to refinance with the VA IRRRL. The only things the lender needs are as follows:
- You must prove that you made your last 12 months of mortgage payments on time. If you have at least 12 payments made, the lender can make one exception for one 30-day late payment. You just have to be current on the loan today.
- You must prove that you benefit from the refinance. The VA doesn’t want you to refinance unless it makes sense to do so. It costs money to refinance, so you want to make sure that you are able to benefit from it otherwise it doesn’t make sense to do so.
Many people are able to refinance their VA loan even if they are upside down on their loan (owe more than the home’s value) or if their credit score or income changed for the worse.
Keep in mind that you cannot take any cash out of the home’s equity with this loan. You may only refinance the current outstanding balance of the loan plus any applicable closing costs. The VA IRRRL program is only for those borrowers that have a current VA loan. If you have any other loan program but want to use your VA benefits, you’ll have to use the VA cash-out refinance that we discuss below.
The VA Cash-Out Refinance
If you need to tap into your home’s equity, you need the VA cash-out refinance. This program is also for veterans that obtained another type of financing but want to use their VA benefit now.
The VA cash-out refinance does require a home appraisal. The lender needs to know that there is enough collateral in the home for you to increase your loan amount. Without the appraisal, the lender and the VA could be putting themselves at risk for a serious loss.
The VA cash-out refinance also requires that you prove your income, assets, and credit score. In other words, it’s like applying for the purchase loan all over again. You have to verify everything that you claim on your loan application in order to ensure that you are a good risk.
This is also true for borrowers that refinance form another loan program into the VA loan. Even if you refinance just to get the lower rate and you don’t take cash out of your home’s equity, you still have to verify your eligibility for the loan. Since the VA never verified that you were a good candidate for the VA loan, the lender doesn’t have anything to reference when deciding if you should get the loan or not. You’ll have to provide all of the necessary documents described above in order to get the loan.
The VA loan is one of two loan programs that have an option to refinance without an appraisal. The only other program is the FHA streamline program, which works in a similar fashion to the VA streamline refinance. If you only want to better your loan’s terms, you may qualify for the VA streamline refinance, saving you money on the appraisal and the hassle that a full loan application requires.