Credit is one thing that’s almost always linked to mortgage. Good credit is necessary to get a good mortgage. The better your credit, the more attractive your loan becomes.
Why is credit important in home financing?
It serves as a record of how you’ve dealt with your debts in the past. It summarizes years and years of credit and debt dealings into a few pages and numbers which are more understandable and concise. This document is then reviewed by lenders and underwriters to know if you will be able to handle additional financial responsibility.
This puts ‘credit’ at the core of mortgage underwriting. This is done to ensure your safety and theirs. It needs to be reviewed so as to protect both parties from any financial damage in the future.
Let’s find out how credit affects one of the most popular VA refinancing programs — the VA IRRRL.
VA IRRRL Credit Requirements
The VA Interest Rate Reduction Refinance Loan ( IRRRL) is a popular choice for numerous Military Veterans and Servicemembers. This is because it makes refinancing a mortgage a whole lot faster and easier.
The refinancing process is streamlined so as to save the homeowner’s time. But that isn’t the biggest benefit a VA IRRRL offers. It is a great way to bring down the current mortgage’s interest rate so the owner can save a huge deal of money on their mortgage.
Doing IRRRL refinancing reduces the borrower’s monthly mortgage payments. With it, the loan becomes more manageable and affordable. It makes the loan a lot easier to pay back.
What are the credit requirements?
For such a great refinancing deal, one may immediately conclude that the VA IRRRL requires satisfactory credit. This simply isn’t true.
For VA IRRRL, the Veterans Affairs does not require a credit underwriting. This is stated in the ‘ VA Pamphlet 26-7, Revised, Chapter 6: Refinancing Loans.’
“Generally, no appraisal, credit information or underwriting is required on an IRRRL, and any lender may close an IRRRL automatically.”
Clearly, the Veterans Affairs doesn’t have a stipulated minimum credit score that an eligible Military Veteran or Servicemember needs to meet in order to refinance through the VA IRRRL.
Any lender can choose to process your VA IRRRL application without necessitating a credit underwriting, except for special cases. However, you have to be aware that some lenders may still opt for a credit underwriting anyway. They have all the right to do so.
A Lender May Have Credit Requirements
VA doesn’t stop lenders from having overlay requirements if they think that this is imperative to ensure that the borrower can truly afford a VA IRRRL. Furthermore, some lenders may require a credit score of 580.
Remember, though, that overlay requirements aren’t mandated by the VA. There is still a large number of lenders who don’t have overlay requirements for a VA IRRRL. They just stick with the VA guidelines. So long as you meet these minimum requirements, you can qualify for this refinancing program.
However, there are a few exceptions to this rule. Taken from the VA pamphlet, “no credit information or underwriting is required unless:
- the loan to be refinanced is 30 days or more past due (see section 2 of this chapter) or,
- the monthly payment (PITI) will increase 20 percent or more.”
There you have it, Veterans Affairs doesn’t have any credit requirement except for two scenarios. A lender may or may not have credit overlays. It’s highly encouraged that a borrower shop for a lender who’s willing to process the IRRRL without any overlays.