The VA is very strict about the need for a home inspection when you buy a home. This is in the best interest of the buyer. The VA doesn’t want you buying a home with major issues. This puts your financial security at risk. Of course, it also puts the VA loan at risk for default. Once you buy the home, though, you won’t need the inspection again for a VA IRRRL refinance.
The Goal of the VA IRRRL Refinance
The VA offers the VA IRRRL in order to help make your loan more affordable. You qualified for the original payment on your current loan. Now the VA wants to reward you with a lower payment. There are guidelines though.
- You must make your last 12 months’ of mortgage payments on time. This shows a lender you can easily afford your current loan. The new IRRRL payment must be lower than your current payment. If you afford the higher payment, you should afford the lower one with no problem.
- You may only refinance the current outstanding principal balance plus any allowed closing costs. The VA allows you to include up to 2 discount points in that amount.
- You must prove you lived in the home prior to application for the IRRRL.
Why a Home Inspection Isn’t Required
The VA requires a home inspection on new purchases because they aren’t familiar with the home. They don’t know if there is termite damage or a cracked foundation. Maybe the roof only has a year left on it or the plumbing is bad. A regular appraisal will not show these things. Even those appraisers must make sure a home meets the Minimum Property Requirements, they are vague. The inspection lets lenders know the home is safe and sanitary.
Once the VA guarantees a loan on the property, they are on the hook for the loan. If you want to refinance and lower your payment, they don’t require a home inspection. It wouldn’t do much good. They already guaranteed the current loan. If there were issues with the inspection, the borrower could just keep their current loan. This doesn’t help the VA. With the VA IRRRL, though, you get a lower payment. This could free up more money for you to fix any potential problems that exist.
Pest Inspection is Different
Keep in mind, a pest inspection is different than a home inspection. You still don’t need a pest inspection on a VA IRRRL refinance. But, you do need it on a standard VA refinance. This occurs when you take cash out of your VA loan or refinance from another loan type to a VA loan. In either case, you may take money out of the equity of the home. This puts the VA at risk. They need to know that the home is free of any type of pest damage before guaranteeing the new loan.
Lender Overlays May Paint a Different Picture
Just like your VA purchase loan, the VA sets the minimum guidelines for a VA IRRRL refinance. This doesn’t mean a lender can’t add their own requirements onto it. In fact, you may find 2 lenders located right down the street from one another that have different requirements. The best way around this is to shop around. Talk with different lenders and see what they require. It’s unusual to find a lender that requires a home inspection on a VA IRRRL, but some lenders may require it.
Overall, a home inspection isn’t a bad thing. It lets you know things that may be wrong with your house that you didn’t know. However, very rarely should it interfere with your ability to refinance your VA loan. The VA IRRRL program allows you to obtain a lower mortgage payment. This often makes it easier to afford your mortgage. In the end, you have more money in your pocket and may be better able to keep up with your home’s maintenance.