If you have a VA loan currently, you have the benefit of using the IRRRL program. The Interest Rate Reduction Refinance Loan gives you the chance to refinance without verification of anything except your mortgage payment history. What about unemployment, though? Where does the VA stand on the subject? We discuss this below.
The VA’s Rules for Unemployment
Generally, the VA does not require lenders to verify income or debt ratios. Because they don’t need this information, they also don’t need to verify an employment history. This applies to standard VA IRRRL borrowers though. These borrowers benefit from a lower payment and are not currently in default on their VA loan. They also do not have any late payments on their VA loan in the last 12 months.
Because the VA does not require lenders to verify employment for these borrowers, it’s possible some will be unemployed and still refinance. This actually works to the borrower’s benefit because they get a lower payment that they may be better able to afford while they seek employment.
The Exceptions to the Rule
Veterans that fall under either of the following circumstances won’t be as lucky, though:
- The new payment increases more than 20% (borrowers refinancing from an ARM to a fixed rate or those refinancing into a shorter term)
- The borrower will be more than 30 days delinquent on their VA loan by the loan’s closing date
If you fall under either of these situations, your unemployment could affect your loan eligibility. Borrowers in either of these situations are considered ‘risky.’ Most lenders won’t just hand over a loan based on their mortgage payment history. In fact, if your payment increases more than 20%, the VA requires lenders to verify your capability of making the payment. Lenders will verify this by ensuring you have enough monthly income and that you are gainfully employed.
If you will be more than 30 days late on your current payment at the time of closing, the VA requires a telephone verification of employment as well as proof of a current paystub before clearing the loan for closing.
Lenders Get to Choose
Aside from the relaxed VA rules, VA lenders have their choice regarding how they want to handle IRRRL mortgages. Even though the VA states they don’t have to verify employment, it does not mean they won’t do it.
Each lender acts at their own discretion. If you use your current lender for the VA IRRRL, they may not verify employment if you have a positive mortgage payment history. They already know you are a low risk and make your payments on time. If your new loan payment will decrease, they have no reason to worry about your ability to pay the loan.
However, if you shop around with other lenders in hopes of getting a lower interest rate, you may find different requirements with each lender. Some may want to verify everything, including your income, assets, and employment. They don’t want to take a chance on you as a new borrower. If you don’t have a job, you may not find a VA IRRRL with that lender.
Some lenders, however, take the VA rules to heart and only require what the VA requires. It just requires a little shopping around. If you can’t prove current employment, you’ll need to find a lender that will verify your mortgage payment history and nothing else.
It could be tricky to find a VA IRRRL when you are facing unemployment, but it’s not impossible. Shopping around for a lender with relaxed guidelines will also help you find the lender with the best rate for you.