If you currently have a VA loan, you have a simple way to refinance. The program, called the VA Interest Rate Reduction Refinance Loan, gives you access to a loan with a lower rate with very few requirements. The VA uses your qualifying factors from your original VA loan in order to qualify you for the refinance. The VA IRRRL requirements are very basic, but the specifics might vary by lender as each lender can handle a specific amount of riskiness.
The Most Important Rule
The most important rule of the VA IRRRL program is that your payment decreases. This is the idea behind the program – the VA wants you to save money on your mortgage payment so that your disposable income increases each month. This means you refinance your loan in order to decrease the interest rate. The only exceptions to this rule are if you refinance from an adjustable rate loan to a fixed rate loan or you refinance into a shorter term. In these cases, your payment might increase, but you put yourself in a better situation.
The VA always puts a large amount of emphasis on the amount of money you have in your hands each month. In fact, in order to qualify for the original VA loan, you had to meet the requirements for your area in terms of disposable income. Without enough money in your hands each month, your mortgage payments are at risk because you could find yourself forced to choose between paying your mortgage and paying your daily living expenses.
Qualifying Factors for VA IRRRL Requirements
So once you prove that you will save money every month or lower the risk of your loan, what else do you have to prove to the lender? The following requirements typically prevail:
- Your housing history must be in good standing. The lender can verify the timeliness of your mortgage payments with your current lender. You can have one late payment during the last twelve months. This late payment cannot be more than 30-days late. If you have more than one late or one late that is more than 30-days, you will have to wait until you have a full 12-months with a clean housing history.
- You must show that you lived in the house while you held the original VA loan. Moving forward, you do not have to live in the home to keep the VA loan, though.
- The lender will likely require you to verify your employment even though it is not a direct requirement from the VA. Lenders like to verify that you have a job and if you changed jobs since your original loan, they want to make sure it is a stable job and that you will not job hop once you obtain the mortgage.
- Some lenders may verify your income, even though it is not a VA requirement. Typically, lenders take this step if your job is new, as it poses a new risk to them.
Appraisals not Necessary
Perhaps one of the largest benefits of the VA IRRRL program is that you do not need an appraisal. Many lenders abide by this VA rule, enabling veterans to refinance into a lower interest rate without knowing the current value of their home. If you live in an area that the lender knows has dropped in value recently, they may require a drive-by appraisal just to ensure you are not underwater on your mortgage. Some lenders, however, do not care since the IRRRL program helps make your loan less risky by giving you a lower mortgage payment.
There are many lenders that offer the VA IRRL. Each lender can add to the VA IRRRL requirements, however, so shop around to find the lender that will approve your situation. The only things you cannot get around are the housing payment requirements and the need to prove your residency while holding the original VA loan. The other factors, such as proving your employment, income, or dealing with a decreased value in your home will vary by lender. What one lender will accept another might turn down. As a veteran, you have the option to shop with any lender that is VA approved, so do not restrict your options to just one or two lenders.